UKRAINE has secured a deal with its creditors on $18 billion-worth of external debt. The creditors, represented by a number of big financial firms, agreed to a 20% write-off of the principal. One bond included in the discussions is $3 billion that Ukraine owes to Russia. For those who have not kept up with Ukraine’s debt negotiations, here is a quick refresher.

Russia lent Ukraine $3 billion in December 2013. The bond was arranged by Western law firms (including White & Case and Clifford Chance) and is listed on the Irish stock exchange. The bond was essentially a bribe to Viktor Yanukovych, Ukraine’s now-ousted president, who was dithering between European and Eurasian integration. Senior Ukrainian officials say that the government itself never saw the money; most probably it was spirited out of the country by Mr Yanukovych’s cronies.

Since its issue, the bond has caused Ukraine big problems. A bizarre clause in the bond says that if Ukraine’s debt-to-GDP ratio exceeds 60%, Russia can demand early repayment; that might, in turn, trigger an automatic default on Ukraine’s other international bonds through a so-called “cross-default” clause. The government’s debt is well above the 60% threshold (it is touching 100%), thus enabling Russia to precipitate a default if it wants to. It has not yet done so. But repaying the bond would be very tricky for Ukraine, which has only about $12 billion in foreign reserves. Repaying Russia would also go down badly with the Ukrainian public.

How has Russia reacted to Ukraine’s debt-restructuring deal? Not well, you will not be surprised to hear. Anton Siluanov, Russia’s finance minister, says that Russia will not even talk to Ukraine regarding the restructuring of that bond. Russia now argues that the debt is an “official-sector” loan (not a private-sector one) meaning that it is not subject to the debt deal. By arguing this, Russia causes other problems, even if it does not get repaid. The International Monetary Fund is not supposed to lend to a country if it is in default to an official creditor. But Ukraine is desperately dependent on IMF funds to stay solvent; it is expecting another tranche of cash sometime in the autumn. Timothy Ash of Nomura, a bank, says he is “not sure that a clear strategy has yet been worked out” by the IMF. Ukraine’s debt saga is far from over.

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