Russia Pushes IMF for Response, Won't Send Debt Offer to Ukraine

  • Ukraine needs to initiate talks if it can't pay, Russia says
  • Putin made proposal to restructure debt Russia bought in 2013

Russia, which has previously refused to negotiate with Ukraine over restructuring its $3 billion Eurobond, is waiting for the International Monetary Fund to respond to its proposal to change the terms on the debt and expects the cash-strapped country to initiate new talks if it’s unable to pay in full on Dec. 20.

The impasse can only be resolved “in the framework” of the IMF-led program of assistance for Ukraine because the nation lacks the financial means to pay, Russian Finance Minister Anton Siluanov’s aide, Svetlana Nikitina, told reporters in Moscow Friday. “Until a conceptual solution to the problem is found, we still expect the debt to be repaid,” she said.

The countdown is on for the Dec. 8 deadline given by Russia after it offered to change the terms and spread out payments by Ukraine over the next three years. Ukraine, which in August agreed to a restructuring deal with creditors that didn’t include Russia, has insisted that all bondholders should be treated equally in its $18 billion debt overhaul to meet IMF conditions for a financial lifeline. Russia has refused to accept the terms, insisting the bond is a loan between governments rather than commercial debt.

“We haven’t sent and aren’t supposed to send any formalized proposals to the Ukrainian side, because the Russian Federation in this case is acting as a creditor,” Nikitina said. “According to international practice, a debtor should should come up with negotiation proposals on the debt if it realizes it is unable to repay on time.”

Putin’s Offer

After months of refusal to negotiate with Ukraine over restructuring the Eurobond, sold by Ukraine’s ousted leader Viktor Yanukovych in 2013, Russian President Vladimir Putin made the proposal this week at a Group of 20 summit in Turkey, which followed his bilateral meetings there with U.S. and European leaders as well as IMF Managing Director Christine Lagarde.

Russia is ready for broader talks on restructuring the debt if its offer to change the payment terms is accepted by Dec. 8, Siluanov said Wednesday. Ukraine hasn’t received Russia’s restructuring proposal, Finance Minister Natalie Jaresko was cited as saying the same day by Interfax.

IMF Lifeline

An agreement on the notes Russia bought in December 2013, two months before Yanukovych was ousted, would remove questions about Russia’s status as a creditor that could have hindered payments from the IMF’s bailout. The program is propping up the country’s economy after a conflict with pro-Russian separatists in its easternmost regions drained reserves and plunged it into a recession.

Russia proposed letting Ukraine pay back $1 billion annually from 2016 to 2018 and asked for guarantees from the U.S., the European Union or a large bank, according to Siluanov. While Ukraine’s interest payments over the restructured debt are subject to negotiations, Russia expects it to make a $75 million coupon this year if the proposal is accepted, he said.

Russia had earlier refused to take part in debt talks that led to an accord with creditors led by Franklin Templeton It’s still unclear if Ukraine can accept the deal under the conditions of its debt restructuring, which prevent it from giving holdouts better terms than those agreed to by other bondholders.

The restructured notes, which started trading last week, dropped for a second day, with the yield on the 2025 securities rising 10 basis points to 8.59 percent by 2:11 p.m. in Kiev. The hryvnia was down 1.3 percent to 24.055 versus the dollar. It’s lost more than 34 percent against the U.S. currency this year.

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