Ukraine would be willing to repay early a $3 billion bond held entirely by Russia if the issue's conditions are violated, but not until next year, a senior Ukrainian Finance Ministry official said on Friday. Russia bought the two-year bond in December, before the fall of Ukraine's pro-Moscow President Viktor Yanukovich, Moscow's annexation of Crimea and the violent conflict in the eastern part of Ukraine that followed.
It was the first tranche of a $15 billion rescue plan agreed with Yanukovich but abandoned after he was ousted in February.
Russian Finance Minister Anton Siluanov told Reuters that Moscow may ask for the cash soon if official data prove one of the bond's conditions is broken.
Galina Pakhachuk, head of the debt department at Ukraine's Finance Ministry, said that Kiev is ready to repay the bond early if the country's overall debt exceeds 60 percent of nominal gross domestic product, as envisaged in the bond's covenant.
But she said that would not happen until next year.
"In the conditions it is clearly stated that if the debt at the end of the year exceeds 60 percent of GDP - and official statistics will be published at the end of March - then, potentially they (Russia) can ask for the Eurobond's repayment, if they wish," Pakhachuk told Reuters over the phone.
Siluanov said that based on unofficial statistics and the hryvnia's devaluation, the threshold has already been crossed, possibly giving Moscow the right to demand early repayment.
According to the Eurobond's prospectus, the debt-to-GDP ratio of 60 percent cannot be breached at any time.
"The terms and conditions of the Original Notes include a restriction ... on the total state debt and state guaranteed debt exceeding 60 percent of GDP at any time," the prospectus reads.
Siluanov said Russia will wait until November of this year for data on Ukraine's indebtedness at the end of the third quarter before making decision whether to ask for the cash back. The hryvnia has lost almost 36 percent against the dollar since the start of the year, Reuters calculations show.
On Thursday, the Ukrainian security service opened a criminal case over the Eurobond, alleging abuse of office by Ukraine's former finance minister and violation of the budget law in organising the sale.
Siluanov said that Kiev was trying to do everything either to invalidate the sale or not to repay its debts. This could threaten Ukraine's fiscal stability and hurt hopes of an improvement in relations between the two neighbours, now at their lowest point in post-Soviet history, analysts said.
"This would be a major complication all around, and just underscores that Russia continues to be less than constructive in its approach towards Ukraine," Timothy Ash, head emerging markets strategist at Standard Bank in London, wrote in a note.
Kiev alleges as well that the placement of the bond includes an illegal transfer of a $450,000 fee to VTB Capital. "Claims made by the Ukrainian authorities that the placement of USD 3 billion in bonds was carried out illegally are completely baseless," VTB, the mother company of VTB Capital, said in a statement on Friday. "The placement was carried out in full accordance with English law and applicable Ukrainian legislation," the bank said.
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