Russia expects Ukraine to meet obligations on Eurobonds - minister
WASHINGTON. April 14 (Interfax) - Russia does not intend to declare a technical default on $3 billion worth of Ukrainian Eurobonds as it hopes the country will meet its obligations on these bonds on time, Russian Finance Minister Anton Siluanov told reporters.
"I don't even want to think about [the possibility of declaring a technical default]. I hope that Ukraine will meet all obligations," Siluanov said in response to a question about whether Russia might declare a technical default on the Ukrainian bonds.
Ukrainian Finance Minister Oleksandr Shlapak said earlier in Washington that Kyiv does not plan to use the first tranche of a loan from the International Monetary Fund to pay off debts to Russia. "The money that we will receive will be shared between the reserves of the National Bank and the government budget, and this money will be targeted, so we don't plan to spend it on paying the debt to Russia," Shlapak said, remarking that the first tranche at least would not be used to pay the debt.
Siluanov said that the prospectus for the Ukrainian Eurobond issue includes a covenant stipulating that Ukraine must meet all obligations on sovereign debt on time. "The first obligation [to Russia on the $3 billion Eurobond issue] is due on June 20. Ukraine is supposed to pay us slightly more than $70 million on the coupon of the bond issue we acquired in December," the minister said.
Deputy Finance Minister Sergei Storchak said earlier that the prospectus for the Ukrainian Eurobonds includes covenants that, if triggered, give Russia the right to declare a technical default on these bonds. Under one of the agreed covenants, Ukraine is obligated to "not allow the government debt/GDP ratio to grow to a level above 60%," he said.
"Now, on one hand, the hryvnia's exchange rate has changed, on the other hand problems have arisen with current economic growth, [and] consequently with the size of GDP. Therefore the possibility that this covenant will be breached exists, maybe it's already been breached, there are no reliable statistics," Storchak said at the time, stressing that this would not mean that a technical default would automatically be declared.
Siluanov said that failing to meet obligations to Russia would hurt Ukraine's image as a country that meets all of its obligations. "What trust can there be in such a nation on the part of investors, when such a selective approach will be used - this one I pay, this one I don't pay," the minister said.
He also said that Russia purchased these bonds from Ukraine on non-market conditions. "We bought at face value with a coupon price of 5% annually. If you look at how much Ukrainian bonds cost at the time, it was about 12-13%. We essentially provided assistance here as well, partially free of charge," Siluanov said.
The fact that now Ukraine is refusing to service and pay off its obligations is "of course not partnership relations," he said. "We believe that such a dialog is unacceptable. We will not be able to reach agreement with Ukraine on a whole range of issues if the Ukrainian side will take the position of refusing to pay debts on its obligations, both on sovereign obligations and to a state company such as Gazprom," Siluanov said.
In these circumstances, "it would be strange to consider the issue of providing new amounts of financial assistance, when previous obligations are not being met," he said. "Our budget legislation does not provide for providing any financial aid in the case of unsettled debts of this country. If previous obligations are unsettled, Russia will not offer new obligations," Siluanov said.
He said earlier that Ukraine had asked Russia to buy a second tranche of Eurobonds. "We had contact with my colleague - Ukraine's finance minister, who appealed again for aid to the Russian Federation concerning a similar purchase of another tranche amounting to $3 billion. This proposal is currently at the Finance Ministry and we believe we will consider it as events develop," Siluanov said at a meeting with President Vladimir Putin.
