IMF bail out money to Ukraine may end up in Moscow

27 Mar 2014

putin yanukovych

Yesterday the IMF agreed to a deal worth up to EUR27bn to bail out Ukraine – however some of this money could be pretty soon winging its way to Moscow despite sanctions.

On 24 December 2013, Russia paid the first part of a USD15bn loan which would be in the form of bonds issued by the Ukrainian government over the course of this year. This was no doubt as part of a thank you to then Ukrainian President Viktor Yanukovych for turning his back on the EU.

The second tranche was due at the end of February but the Russians did not come up with the cash owning to the new government being in place. So it was a bit silly getting rid of Yanukovych before the money came in, perhaps they could have waited a couple of days.

The deal itself is very good. Ukraine pays only five percent interest over two years – which for a country with its credit record and ratings is very generous. The whole deal matures in December 2015 with the first repayment needing to be made in June 2015.

The bond deal is in USD (not RUR or UKH). It is further governed by UK law (not Russian law) and subject to the exclusive jurisdiction of British courts. Why? Because Russia wants its money back – the loan is only a thank you not a present.

However there is a condition that states that should Ukraine’s debt go above 60% of GDP then Russia can immediately call in the loan – and obviously has access to UK courts to do so.

Should Ukraine default, which is quite likely in the current circumstances, then Russia can call in the loan quite easily via its lawyers in London. And who would then be left to bail the Ukraine out? Probably the EU and US. That sounds like a good case of sanctions busting to me.

Photo : Putin and Yankovych in Moscow in December 2013.

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