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Ukraine's prospects to repay $3 bln debt to Russia look gloomy

Ukraine's prospects to repay its debts to Russia look gloomy so far, Russian experts say. In their opinion, either long and complex negotiations or judicial proceedings with no quick results lie ahead.

International creditors agreed on Thursday to write down $3.6 billion out of Ukraine's $19.3 billion private debt. Both sides also agreed that the repayment of the remaining debt would be extended to 2019. Meanwhile, the Ukrainian authorities officially announced that Ukraine's debt to Russia wouldn't be paid in full and offered Moscow to agree to the same terms of debt write-down.

Moscow, however, intends to demand full debt repayment in December 2015.

"Russia is not taking part in this debt operation," Russian Deputy Finance Minister Sergei Storchak told TASS on Thursday. He also said "the Finance Ministry of Russia has not received any official proposal from Ukraine on debt restructuring."

Russia purchased Ukraine's sovereign bonds worth $3 billion in late 2013. Ukraine is due to repay its debt to Russia before December 20, 2015. The Ukrainian financial authorities have said on many occasions they consider Russia's loan as a commercial debt and insist on its restructuring. Moscow, however, considers this loan as Ukraine's state debt and demands its full repayment on time.

The Ukrainian parliament, the Verkhovna Rada, adopted a law in May allowing the country's authorities to impose a moratorium on debt repayment to external commercial creditors "in order to protect national interests."

"The situation, on the one hand, looks quite favorable for Russia in the sense that the IMF refers this $3 billion debt to inter-state liabilities, which are regulated by the Paris Club and should be treated separately from the pool of commercial debts," Senior Expert at the Development Center Institute of the Higher School of Economics Sergei Pukhov told TASS.

"The IMF should not grant a loan to the country, which has not settled these debts. Actually, Ukraine should not get new IMF tranches without repayment of its debt to Russia," the expert said.

Russia's position is that the debt has to be repaid but there is also another position, on which Ukraine insists, the expert said.

The whole matter has now come to Ukraine's threats to impose a moratorium on debt payment, he added. "There is also a third option, namely, a litigation process. Considering the judicial decision on Argentina, Russia has quite winning positions," the expert said.

"The very idea of pressure on Russia both from Ukraine and international creditors has always been present in this issue," Professor of the Higher School of Economics Ivan Rodionov told TASS.

"I don't rule out that it was a condition of the agreement on the debt write-down that Ukraine would not pay Russia," Rodionov said.

Last year, when the IMF started crediting Ukraine, a part of the funds was purposefully intended for debt repayment to Russia in several instances. But this never happened. In the expert's opinion, this was due to some agreement. "That is, it was not Ukraine that breached the terms because it later received next tranches after all and, therefore, everything is not so simple in this case and some accords existed. That is, Ukraine's creditors considered that Russia should suffer most of all," the expert said.

The negotiations on the repayment of debts to Russia "will go on constantly but they won't be acute," Rodionov said.

This is because if Russia halts gas supplies to Ukraine as a result of the dispute on the debt problem and Kiev retaliates by blocking Russian gas transit to Europe across the Ukrainian territory, this will cost Moscow even more, the expert said.

The option of taking the matter to a court of law holds little promise, the expert said.

"The examination of the matter will last long while a judgment will not be fulfilled after all. The sides will have to come to terms. There is no other option," Rodionov said.

Head of Nektorov, Saveliev & Partners international law firm Marat Davletbayev agrees that difficulties may emerge with the recovery of debts from Ukraine through a court of law.

"Even if a judicial or arbitration judgment is obtained, the plaintiff will have to find Ukraine's foreign assets that are not protected by immunity and could be seized. But they would most likely turn out to be few. Or the plaintiff should try to enforce the judgment in Ukraine, which may turn out to be even more complex," Russian business daily Kommersant quoted Davletbayev as saying.

Considering that Ukraine recognizes the debt, "creditors in similar situations in international practice prefer to agree on debt restructuring or rescheduling rather than to enter into long litigations with gloomy prospects," the expert said.

[Source: By Lyudmila Alexandrova, Itar Tass, Moscow, 28Aug15]

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