Russia Says Ukraine Bond Due Too Soon for Out-of-Court Deal

  • Siluanov says Russia is ready to cooperate with Ukraine
  • Legal advisers for both sides are in contact: Siluanov

Russia said it may be too late to negotiate new terms with Ukraine for a $3 billion bond outside of court, even as Germany oversees talks just four days before the debt comes due.

Finance Minister Anton Siluanov said the country is seeking better terms than Ukraine gave to private creditors including Franklin Templeton in a $15 billion restructuring, which included a 20 percent principal reduction. Yesterday, his counterpart in Kiev, Natalie Jaresko, said the neighbors were in "everyday contact" via Germany to resolve a months-long stalemate over the bond sold by the country’s ousted former president two years ago.

Asked if there was a chance for an out-of-court settlement, Siluanov said: “We’re open to cooperation but technically it’s impossible.” “An official creditor should have better conditions for restructuring than commercial creditors," he told reporters in Moscow.

Russia has been softening its tone on the debt since refusing to accept terms of the broader restructuring this year, with President Vladimir Putin proposing last month that Ukraine be able to pay it back over three years so long as a western government or bank provide a guarantee. That offer fell through earlier in December and the government in Moscow reiterated its threat to take Ukraine to court as recently as last week.

A default on the note due Dec. 20 would take effect by the end of a 10-day grace period.

Legal Advisers

On Wednesday, Siluanov said the government has appointed an adviser for court proceedings, who has been in contact with counterparts in Ukraine. No direct negotiations between Russia and Ukraine have taken place and the government in Moscow is waiting for proposals from Kiev, he said.

Germany declined to comment yesterday on its role in the negotiations after Jaresko said the country was acting as a “broker.”

Ukraine is barred from giving Russia better terms under the conditions of the restructuring agreement with private creditors and a $17.5 billion IMF aid package secured this year to keep the country’s economy afloat. Relations between the two sides have deteriorated since the bond was sold as Russia annexed Crimea and separatist unrest erupted in Ukraine’s easternmost regions.

‘Good Faith’

Germany helped negotiate a fragile truce between pro-Russian separatists in eastern Ukraine, Russia and the government in Kiev that has held since September. The coutnry also mediated a meeting between finance ministers of the neighboring countries held on the sidelines of an International Monetary Fund summit in Peru in October, Jaresko said.

“Ukraine is demonstrating its good faith in continuing these discussions after
Minister Jaresko and Minister Siluanov met on the sidelines of the IMF-World
Bank meetings in Lima,” Ukraine’s finance ministry said in an e-mailed statement on Wednesday.

The IMF last week nudged Ukraine toward negotiating with Russia, saying in a policy document that it will only keep lending to countries in default to other sovereigns if they have engaged in "good faith" negotiations to try to restructure.

Until now, Ukraine has said it regards the Russian security as commercial debt since it was structured as a Eurobond. The government in Moscow insists it should be treated as an official loan. The IMF will make a ruling on the status of the bond today, Siluanov said.

Before it's here, it's on the Bloomberg Terminal.