Court battle likely as Ukraine defaults on $3bn bond to Russia

Ukraine has said it will not repay $3bn (€2.76bn) in bonds due to Russia.

A court battle is likely amid new economic tension between the two ex-Soviet neighbours.

Ukraine prime minister Arseniy Yatsenyuk said Kiev was imposing a moratorium on the note, which Russian president Vladimir Putin bought two years ago as part of an abortive bailout for Ukraine’s former leader, just months before he was toppled.

Russia said yesterday it will wait until a 10-day grace period on the bond expires, on December 30, before starting legal action.

Ukraine, its finances reeling from a two-year conflict with Russian-backed separatists in the east of the country, had pushed Russia to join an $18bn restructuring with commercial creditors this year.

However, Russia said the debt was sovereign, despite its unusual Eurobond form, and proposed its own repayment terms.

The default “is just confirmation of the unimproved relations between the countries”, said Simon Quijano-Evans, the London-based chief emerging-market strategist at Commerzbank.

“The hope is that backstage negotiations will succeed in finding a solution. Otherwise, a legal case would probably ensue, unnecessarily complicating the ongoing political discussions surrounding eastern Ukraine and the sanctions.”

Russia has stepped up pressure in recent weeks, imposing trade restrictions on a range of Ukrainian products from the first of the year, when a trade deal between Ukraine and the European Union is slated to take effect.

Bloomberg