Russia has put Ukraine account for additional default


read the copy of the claim filed by Ukraine in the interests of Russia the company The Law Debenture Trust Corp. “trusting” the issue of Ukrainian Eurobonds for $3 billion. the lawsuit States that on 21 December 2015, when it come to the maturity of the securities, Ukraine has not paid $3,075 billion (principal and last coupon), and as a result had broken the trust deed (Trust deed) with The Law Debenture Trust, loan terms and the Agency agreement with Citibank as paying agent and Registrar.

“Due to Ukraine’s refusal to pay the attorney (Trustee) and the Ministry of Finance (as the sole holder of the securities) have suffered losses and damages to be assessed [to the court],” including outstanding $3,075 billion, penalty interest, as well as “various other expenses” for the protection of their rights within the framework of the bond issue, said in the lawsuit. Furthermore, the plaintiff believes that the penalty interest should be charged at the rate of 8% (the rate specified in the law for debt, recognized in the judicial decision), or $683,33 thousand a day, or at the rate of 5% (in papers), or alternative rate, if the court will decide.

As of 16 February, when a lawsuit was filed, Ukraine owed Russia $3 billion 114 million 633 thousand (at the rate of 8%), or $3 billion 99 million 771 thousand (at the rate of 5%), says the lawsuit. In this case, the plaintiff asks the court to appoint an additional compensation in favor of Russia over the debt and accumulated interest.

With Ukraine’s need to “seek everything, including, of course, those penalties will be accumulated by the Ukrainian side”, instructed the head of Russian government Dmitry Medvedev at a meeting with Ministers on 21 December 2015.

The lawsuit was filed in the High court of England, will consider it a new unit, created at the end of 2015 — Financial List, specializing in British and international disputes relating to securities, derivatives, currency and commodity markets. Its first specialized court verdict issued in January 2016. The nominal interests of the plaintiff — Trustee is Norton Rose Fulbright, the Ministry of Finance of Russia Cleary Gottlieb Steen & Hamilton, and Ukraine hired to protect Los Angeles-based Quinn Emanuel Urquhart & Sullivan.

“Economic question”

Ukraine has recognized the Russian claim on 3 March and said the English court of his intention to object to all claims. If for Russia it is essentially important to turn the hearing in the mainstream (“the Judge is a professional lawyer, the debate is on economic issues. Why would he political-investigative reasons to find out? He establishes the fact of default and shall render the verdict,” said last month a source in the financial block of the government), then Ukraine is going to make political arguments. Kiev will have to prove that a loan of $3 billion (“debt Yanukovych’s”) was “a bribe both in form and in content”, said the Minister of foreign Affairs of Ukraine Pavlo Klimkin on February 18. “The risks for Russians large”, because in court they would have “much to tell”, the court may request any documents relating to “duty of Yanukovych”, and all people, said in January the Deputy klimkina Elena zerkal in an interview ZN.ua.

Lawyer Quinn Emanuel Alex Gerbi representing the interests of Ukraine, did not respond to a request to talk about legal strategy. Jonathan Kelly from Cleary Gottlieb and Michael Golden of Norton Rose also did not answer questions . The first date of hearings is not appointed yet.

Pitfall

Earlier, Ukraine fixed in the agreement with commercial creditors that will not return to Russia the full amount of the debt. New Ukrainian bonds, which were issued in favor of commercial creditors in the framework of last year’s restructuring, contain a special provision about the lack of privileges for holders of old securities (Most Favoured Creditor). According to it, Ukraine is not entitled to pay of Russia “in accordance with contractual conditions” of old papers and may not “enter into any agreement” with Russia that would give it better financial terms (from the point of view of the so-called net present value, NPV) than those that agreed commercial lenders. The latter is possible only if Ukraine compensates private lenders financial advantage derived by Russia. Or if private creditors will agree to vote to make an exception from the reservation in favor of Russia.

If Ukraine violates the Most Favoured Creditor status, it would be a violation of the obligations under the new securities, to the prospectus, and thus may be the basis for investors to submit their bonds for early repayment.

Whether a violation of the Most Favoured Creditor clause, if Ukraine is forced to pay Russia $3 billion with interest, not willingly, but by the decision of the English court? This can hardly be attributed to the wording “to enter into the agreement”, then on the second paragraph of clause violations will not. As regards the first point, it is not clear whether the enforcement be considered “pay in accordance with contractual conditions,” says a partner at Ukrainian law firm “Lavrynovych and partners” Olena Zubchenko (company repeatedly acted as a legal Advisor of the Ministry of Finance of Ukraine on Eurobonds). “If Ukraine will not pay (as I understand it, Ukraine is not going to pay), no violation [of the terms of the restructured securities] will not be,” she adds.

If the court finds that Ukraine must pay for those conditions that were originally agreed, it will not violate its agreements with private creditors, says solicitor Herbert Smith Freehills Alexei Panich, because the decision is “beyond the control of Ukraine.” “In a situation where a third party intervenes — the court, Ukraine does not violate agreements with their private creditors, as the opinion of the court on this issue. Ukraine has promised that will not offer the best terms, and she did not propose, and the court may decide differently,” he says.