The Ukrainian government’s legal representatives will begin a battle with Russia in London’s High Court on Jan. 17 over the status of a $3 billion Eurobond issued by Ukraine’s pre-revolutionary government.
Ukraine argues that the bond was issued illegally in 2013 under former Ukrainian President Viktor Yanukovych, and should also be voided because of Russia’s annexation of Crimea in 2014 and subsequent invasion of eastern Ukraine.
Ukraine’s defense say Russia cannot insist on repayment of the bond if it breached its obligations to Ukraine under international law.
“The main is aim of Ukraine is to draw out the process as much as possible because the fact that the debt exists is not under dispute. The debt exists and they will have to pay it back. Therefore, the longer they draw it out, the better for them,” said Roman Marchenko, senior partner at Ilyashev & Partners, who are not involved in the case.
The minimum that Ukraine hopes to achieve is to draw out the process so that the judge doesn’t issue a decision which obliges Ukraine to pay, Marchenko told Kyiv Post. The maximum they can hope for is to make Russia restructure the debt, he said.
With the exception of Russia, the 13 other Ukrainian sovereign and hard currency bondholders agreed to a restructuring of Ukraine’s debt negotiated by the International Monetary Fund in August 2015.
Russia, which filed the lawsuit against Ukraine in February, argues that it should be treated as an official lender and have preferential treatment in repayment. It is demanding full repayment, as well as legal costs, which stand at $75 million, according to Russia’s Finance Ministry.
Russia’s defense does not mention the revolution, the two-year war, or the Kremlin’s military invasion and annexation of Crimea.
Mitu Gulati from Duke University told Bloomberg in June that an English judge might not be able to rule that Russia has breached international law, and the issue might have to be decided in The Hague. This could work in Ukraine’s favor.
In August, 2015, the rest of the bondholders agreed that the principal value of their holdings will be written down by 20 percent, that there will be a four-year average maturity extension, and that interest payments on the new bonds will rise on average to 7.75 percent.
The bonds were issued to Russia through the Irish stock exchange, making it a private creditor debt, but purchased by Russia’s state-owned National Wealth Fund. Russia argued that the debt is inter-state, and so should not be included in the commercial restructuring conducted by the IMF.
Ukraine’s second line of defense is that Yanukovych illegally issued the debt to Russia. By doing so, the present authorities say, Yanukovych raised Ukraine’s external borrowing above the legal limit for 2013. He also failed to have the debt signed off by the Cabinet of Ministers.
Ukraine’s defense say that the loan was part of a wider Russian strategy to pressurize Ukraine at the time and connected to persuading Yanukovych not to sign the Ukraine-EU Association Agreement.
It is unlikely that the High Court will take Russia’s motivations into account or be sympathetic to Ukraine’s failings under Yanukovych, Mark Weidemaier, a professor at the University of North Carolina also told Bloomberg in June.
Onto its third argument, Ukraine has tagged on the assertion it was forced to sell the bonds in December 2013 as its financial position was weak because it did not sign the Association Agreement.
It also argues that the annexation and war have hindered its ability to repay the debt. It is this final argument that lawyers believe is most likely to stick.
In a summary judgment, as requested by Russia, the court will examine all of Ukraine’s arguments before it goes ahead for trial, Reuters reported.
Proceedings could last up to two years, Ukrainian Finance Minister Oleksandr Danylyuk told channel “24” on June 1.
