Ukraine Faces Default Risk as Russia Puts Neighbor on Notice
By Krystof Chamonikolas Jan 16, 2015 9:54 AM ET
The economic pressure being applied by Russia is threatening to push Ukraine to the brink of default, putting the burden on the U.S. and its allies to keep the war-ravaged nation afloat.
The question of Russia calling a $3 billion bond, which Prime Minister Dmitry Medvedev this week said will “soon” be decided, is pushing the government in Kiev toward debt-restructuring talks with other creditors, according to economists from London to New York. Such a request by the Kremlin would trigger a sovereign default for Ukraine, said Regis Chatellier, a strategist at Societe Generale SA (GLE) in London.
Medvedev’s comments highlight the economic front in the conflict as the fighting in Ukraine’s easternmost regions flares up and policy makers in Moscow struggle to contain a currency crisis in Russia. As Ukrainian government bonds trade below 60 cents on the dollar, the Kremlin’s latest weapon is the debt that Russia bought as part of a 2013 rescue package signed with the nation’s then-leader, Viktor Yanukovych.
The prospect of Russia demanding early redemption “could be the catalyst” for a wider debt overhaul, Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said by e-mail. “Restructuring of some sort is practically a foregone conclusion given the severity of the deterioration in the financial and economic environment.”
--CLIP
‘Creditor Rights’
Russia says it has the option to demand immediate repayment on the notes because Ukraine’s debt rose above the equivalent of 60 percent of economic output, breaching levels set in the securities’ covenants. Medvedev said Jan. 14 that the government in Moscow will make a decision on the debt soon.
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http://www.bloomberg.com/news/2015-01-15/ukraine-faces-default-specter-as-russia-puts-neighbor-on-notice.html
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