Ukraine has a chance to defend its position in court that the $3 billion debt is not an official debt / Photo from corpomir.ru
Ukraine is unlikely to see an immediate effect if it loses a case filed by Russia to recover a $3 billion loan taken during Viktor Yanukovych's presidency, because the defeat cannot be sufficient grounds for immediate repayment of the debt and, what is more, Ukraine will be able to borrow new loans from the International Monetary Fund (IMF) and other lenders, according to experts surveyed by UNIAN.
The survey concerned Russia's claim lodged with the High Court of Justice of England and Wales against Ukraine, which has failed to repay the loan provided by Russian President Vladimir Putin to the then Ukrainian President Viktor Yanukovych in December 2013.
"A verdict does not solve the problem of the Russian side's getting the money back, as it will require the initiation of procedures for recognizing and enforcing the decision of the UK court in order to seize Ukraine's assets and property, which would help carry out the decision," said Pavlo Bilousov, the adviser in Aequo law firm.
Dmytro Shemelin, the lawyer at Ilyashev and Partners law firm, believes that even if Russia wins the case, the recovering of the assets might be complicated by the same arguments it [Russia] has been using in relation to the Yukos case. After extended periods of trials, Yukos' shareholders have received the arbitration decision under the Yukos case from the court in The Hague obliging Russia to pay $50 billion damages, but have not been able to see the enforcement of the judgment.
"Russia and Ukraine have fewer assets abroad that are not safeguarded by immunity. We have avoided the risk of cross-default on sovereign bonds, through restructuring. The IMF has cautiously introduced changes in its lending policy, so major risks of Ukraine's default have been eliminated," he explained.
Debt market experts express their solidarity with the lawyers, while being more optimistic about the outcome of the case.
According to Oleksandr Parashchiy, the head of the analytical department at Concorde Capital investment company, the trial itself does not pose a threat to Ukraine.
"I do not expect that funding [to Ukraine] will be suspended. Although such risks exist if Russia starts appealing to the IMF saying that Ukraine does not maintain a constructive dialogue with it. In any case, everything will depend on the IMF's position but so far, the IMF has turned a "blind eye" to the situation with the Russian debt," he said.
According to the expert, Ukraine has a chance to defend its position in court that the $3 billion debt is not an official debt, forcing Russia to accept earlier proposed terms of the debt restructuring.
Senior financial analyst at ICU Group Taras Kotovich reckons that the lawsuit will not become an obstacle to the IMF and other official creditors to prolong their cooperation with Ukraine.
"In IMF's view, commercial debts arrears do not affect the policy of the Fund, and the same has been relevant for official debt arrears starting from the end of last year. Consequently, court proceedings should not affect the disbursement of bailout funds [for Ukraine] from the IMF and other official creditors," Kotovich said.
The expert called as reasoned the position of our country which argues that the debt to the Russian Federation is not the official one, because the loan had been issued through bonds redemption on the Irish Stock Exchange, and those securities could have changed ownership several times, with the end owner being unknown to the Ukrainian Finance Ministry.
As UNIAN reported earlier, Russia appealed to the High Court of Justice in England with a lawsuit against Ukraine after it had defaulted on the repayment of the principal and interest under a $3 billion loan. The fact that the bonds were purchased via the Irish Stock Exchange makes the disbursement a private creditor debt. However, the Russian side insists that this is an interstate debt, as the buyer was the state-owned National Wealth Fund. Ukraine added the $3 billion eurobond to the sovereign and sovereign-guaranteed bonds to be restructured, but Russia reiterated it did not consider the debt to be commercial.
In the course of negotiations, Russian authorities insisted on better restructuring terms than other creditors, which is prohibited by the bond swap memorandum concluded between Ukraine and the holders of the bonds.
Ukraine has carried out the restructuring of debt under the IMF's Extended Fund Facility program approved by the IMF Executive Directors in March last year. In December 2015, the IMF decided that the claim arising from the $3 billion eurobond issued by Ukraine on December 24, 2013, and held by Russia's National Wealth Fund was an official claim for the purposes of the Fund's policy on arrears to official bilateral creditors. At the same time, the Fund revised its lending policy with respect to debtor countries with payment problems, including Ukraine, enabling the IMF to continue its lending program even in case of non-repayment of Russia's loan.
After Russia's refusal to participate in the debt operation, Ukraine on December 18 announced a moratorium on any payments of the Russian debt, including repayment of $3 billion, which was falling due in December 2015. According to a recent statement of the Ukrainian Finance Ministry published following Russia's appeal to the English High Court of Justice, Ukraine's position has not changed on this issue, and "Ukraine intends and is fully prepared to vigorously defend its interests in the December 2013 eurobonds case before the English Court."