by Jonah Shepp
Jamila Trindle and Keith Johnson note an economic silver lining of Russia’s aggression against Ukraine:
It may be cold comfort when enemy tanks are still on its border, but some observers suggest that Kiev should be able to write off at least $5 billion of its debt to Russia because Moscow has effectively stolen Ukrainian territory and energy resources, as well as military hardware and bases. “An obvious focal point for the Ukrainian government now that Russia has intervened across its border, and actually seized land/assets is debts owed to Russia,” said Tim Ash, head of emerging markets research at Standard Bank Group. “No doubt the lawyers are sharpening their pencils as we speak.”
There are already a few ways in which Russian takeover could end up alleviating Ukraine’s debt, the most pressing of which is probably the $1.8 billion (and counting) that Kiev owes Gazprom for natural-gas shipments over the last year.
But Felix Salmon explains that some debt, like the $3 billion Russia lent to Ukraine in December, may prove harder to shake:
[T]he loan was not, technically, a bilateral loan from Russia to Ukraine. Instead, it was structured as a private-sector eurobond. … This is a notorious vulture-fund move: a hedge fund buys bilateral debt from a sovereign, and then sues not as a sovereign but rather as a private-sector creditor. I can think of a few hedge funds which would be interested in Russia’s debt, if they could buy it at a discount to where the rest of Ukraine’s debt is trading. After all, to use a term you might have seen on this blog in the past, this loan is, legally, pari passu with all the rest of Ukraine’s bonded debt.
(In fact, this bond is arguably senior to the rest of Ukraine’s bonds, thanks to a very unusual provision which allows Russia to accelerate the debt if Ukraine’s GDP falls. But since there now seems to be no chance that Ukraine will pay the coupon on this bond, it’s going to be in default very soon anyhow.)
The Dish 