The dispute relates to a $3bn bond the Russian government bought in early 2014 from the government of former Ukrainian President Viktor Yanukovych. Ukraine’s government argues the bond should be considered commercial and treated the same as debt held by private investors. It says that Russia had until 29 October to agree to the same write-down and extension accepted by other creditors. Russia’s Finance Ministry says that it will not negotiate and is searching for a law firm to file suit should Ukraine default when the bond is due on 20 December. 

Seeking compensation

The bond was drafted as a commercial instrument under English law, which means that any dispute will be settled by a judge in the UK. It also contains a clause intended to prevent Ukraine from offsetting its debt as a result of damages inflicted by Russia, for which President Petro Poroshenko plans to seek compensation.

Potential IMF policy change

Russia’s insistence that the loan is official would, should Ukraine not pay, force the IMF to either end its $17.5bn bailout or change its policy of not lending to a country that’s in arrears to another. According to spokesman Gerry Rice, the IMF is currently discussing the latter option and a decision will be made soon. Source: Bloomberg Business