Medvedev Says Russia to Sue Ukraine Over $3 Billion Bond

  • Russia should seek debt repayment and penalties, premier says
  • Ukraine in default, doesn't intend to pay debt, Medvedev says

Russian Prime Minister Dmitry Medvedev ordered the government to prepare a lawsuit to sue Ukraine for non-payment of a $3 billion debt.

Ukraine has defaulted and isn’t planning to repay the bond, judging by official statements in Kiev, Medvedev said Monday at a government meeting outside Moscow. Russia expects full repayment, “including, obviously, the penalties that will have accumulated by then by the Ukrainian side,” which is engaged in “manipulation and violation of its international obligations,” he said.

Russia will also impose counter-sanctions over Ukraine’s free-trade agreement with the European Union that takes effect Jan. 1, Medvedev said. Ukraine will lose its favorable trade status with Russia on that date and standard duties will be levied on Ukrainian goods entering the Russian market, he said.

Ukraine imposed a moratorium Friday on repaying the Eurobond that was due Dec. 20, bringing a feud with Russian President Vladimir Putin closer to a court battle. Putin bought the bond in December 2013 in an abortive bailout of Russian-backed former Ukrainian President Viktor Yanukovych, weeks before he was toppled by pro-European protesters. Ukrainian President Petro Poroshenko described the Russian bond as a “bribe” earlier this year and rejected Putin’s demands for repayment.

London Court

The bond has become a focal point of deteriorating relations between the former Soviet neighbors amid conflict over Russia’s 2014 annexation of Crimea and support for separatists in eastern Ukraine. Russia refused to join Ukraine’s $15 billion restructuring with investors including Franklin Templeton, arguing that its bond was sovereign debt.

Any court case would be heard in London as the agreement was drafted under English law. The prospectus also allows parties to use the London Court of International Arbitration, a tribunal favored by former Soviet states as arbitration is faster and more discrete.

Russia and Ukraine have indicated they’re willing to settle outside of court. Ukrainian Finance Minister Natalie Jaresko said on Friday she was “hopeful” an agreement could be reached without resorting to a legal battle. On Dec. 15, she said the sides are in “everyday contact” through mediators from Germany, a key player in brokering the fragile cease-fire that’s taken hold in eastern Ukraine.

Russian Finance Minister Anton Siluanov said on Saturday that Russia expects full payment and will wait until the new year to start litigation.

Even if a diplomatic solution is reached, Franklin Templeton, Ukraine’s biggest investor, and other bondholders would have to approve the agreement since their debt deal barred the government from giving any holdout better terms.

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