Ukraine officially defaults on $3bn debt to Russia; Moscow to sue Kiev in London court

© Lee Jae-Won
Russia’s Finance Ministry is filing a lawsuit against Ukraine for failing to pay off its $3 billion debt to Russia before the December 31 deadline. This means that Ukraine is now officially in a state of default, the ministry added.

“Ukraine has not made the payment of $3.075 billion in repayment and servicing of external bonds owned by Russia during the grace period, which expired on December 31, 2015. Thus, Ukraine is in a state of default now,” the ministry said in a statement.

READ MORE: Ukraine defaults on $3bn Eurobond to Russia

The lawsuit will be filed in the London Court of International Arbitration (LCIA).

“The Finance Ministry contacted ‘The Law Debenture Corporation plc’ [which acts as the principal creditor to bond issue documents] and initiated legal procedures that are required for an immediate lawsuit against Ukraine. The lawsuit will be filed in the British court [London Court of International Arbitration],” the statement said.

Russian Finance Minister Anton Siluanov stressed that Russian will still be willing to work with Ukraine to solve the problem, even after the lawsuit is filed.

“Russia has always been willing to consider options to assist Ukraine in line with the IMF [International Monetary Fund] program. Russia intends to carefully examine any significant offer from Ukraine, but also believes that the court proceedings do not preclude a constructive dialogue in order to reach an acceptable settlement of the debt,” the statement read.

Ukraine’s sovereign debt to Russia dates back to a deal between President Vladimir Putin and former Ukrainian President Viktor Yanukovich that was struck in 2013 and envisaged Moscow buying $15 billion worth of Ukrainian bonds. Russia bought $3 billion worth on December 20, 2013, and the debt was supposed to be repaid by December 20, 2015.

Earlier in December, Russian President Vladimir Putin ordered the Finance Ministry to file a lawsuit against Ukraine if Kiev failed to repay Russia’s $3 billion Eurobond loan within the 10-day grace period following the December 20 deadline.

READ MORE: Putin orders Finance Ministry to sue Ukraine over unpaid debt

Back in August, Ukraine agreed to a restructuring deal with a creditor committee led by Franklin Templeton (which owns about $7 billion worth of Ukrainian bonds) providing a 20 percent write-down on about $18 billion worth of Eurobonds.

Russia refused to participate in the debt restructuring, claiming its bond purchase was a state loan, not a commercial one.

In November, Russian President Vladimir Putin offered a three-year restructuring plan for Kiev’s debt, provided that loan guarantees were made by the US, the EU or the International Monetary Fund. Under that offer, Russia would have forgone payment in 2015 and Kiev would have repaid $1 billion a year for the next three years.

The deal fell through, however, as Ukraine’s Western backers were unwilling to provide such guarantees.