March 19 (Bloomberg) -- Ukraine will meet payments on the $3 billion of Eurobonds it sold to Russia three months before President Vladimir Putin’s military incursion into the Crimean peninsula, a Finance Ministry official in Kiev said.
“Ukraine will pay its debts as it has been doing,” Denis Khristoforov, an official at the sovereign-debt department of Ukraine’s Finance Ministry, said by phone today, when asked about the bonds issued to Russia. “These are Eurobonds even if there is only one debt holder. If we do not pay them, we would de-facto be in default. Ukraine doesn’t want that.”
Putin said yesterday he will annex Ukraine’s Crimean peninsula in the Black Sea after the region voted in a disputed referendum to join Russia, ratcheting up tensions in a stand-off with the West. Ukraine, which faces $10 billion in foreign-debt payments this year, is in talks about aid with the International Monetary Fund, the U.S. and the European Union.
Russia bought two-year dollar-denominated notes from Ukraine in December as the initial step in what was to be a $15 billion bailout. Russia halted the aid program after Ukrainian President Viktor Yanukovych, a Putin ally, was ousted last month amid the biggest protests since the country gained independence from its former Soviet master in 1991.
Russia won’t trigger an early redemption clause on the bonds over “technical issues,” even though conditions for such a move may already exist, Deputy Finance Minister Sergey Storchak said today, according to Prime news service.
A covenant on the securities allows immediate payment in the event Ukraine’s public debt tops 60 percent of gross domestic product, compared with 40 percent last year, according to the government’s bond prospectus. If Russia absorbs Crimea, it would reduce Ukrainian GDP by about 3.7 percent.
Ukraine’s next interest due on the Russia bonds, which pay a 5 percent annual coupon, is a $73 million payment in June, according to data compiled by Bloomberg. The yield on Ukraine’s 2023 dollar-denominated Eurobonds declined 36 basis points, or 0.36 percentage point, to 10.41 percent at 7:56 p.m. in Kiev.
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