No money for Moscow as Ukraine refuses to repay $3bn to Russian Federation

The “moratorium” on outstanding debt repayments to Russian Federation announced by Ukrainian Prime Minister Arseniy Yatsenyuk effectively means that Ukraine is defaulting on the debt due Sunday.

Late on Thursday, Ukraine’s Ministry of Finance said Kiev couldn’t pay off Russia’s $3 billion Eurobond loan without breaking a debt restructuring deal reached with other worldwide creditors.

It followed the overthrow of a Moscow-allied president in Kiev and Russia’s annexation of the Crimean peninsula from Ukraine in what grew to be the biggest spat between Moscow and the West since the Cold War. Payments are frozen “until our propositions on restructuring are accepted or until a relevant court decision is made”, he said.

Reuters is reporting that Russian Prime Minister Dmitry Medvedev on Monday ordered its government to prepare legal action against Ukraine. But Russia has refused to accept the terms it has offered, arguing that the bond was an official bilateral loan. “Otherwise, a legal case would probably ensue, unnecessarily complicating the ongoing political discussions surrounding eastern Ukraine and the sanctions”.

“Our Ukrainian colleagues have no chance of winning this case”, Russian Deputy Finance Minister Sergey Storchak told state television on Friday.

Also the Ukrainian government has imposed a moratorium on the small payment of Dollars 507m by two Ukrainian companies to Russian banks. That deal involves a 20 percent write-down of bond holdings, which cut Ukraine’s sovereign debt from $19 billion to $15.5 billion. “Under the terms of the new Ukrainian bonds issued on Nov.12, in the debt exchange, Ukraine is prohibited from paying holdout creditors in accordance with the original contractual terms”, the statement added.

Russian President Vladimir Putin last week ordered his government to sue Ukraine if it defaults on the bond, after Moscow said that Kiev has rejected its offers of debt restructuring.