Bloomberg News

Ukraine-Russia Loan Talks Said to Be on Up to $15 Billion

December 16, 2013

Ukraine is in talks with Russia for a loan of as much as $15 billion, with President Viktor Yanukovych heading to Moscow after a weekend of mass protests in Kiev, two people familiar with the negotiations said.

The two sides are also discussing the price Ukraine pays for the natural gas it buys from its eastern neighbor, said the people, who asked not to be identified because the talks haven’t been completed. Ukraine may receive as much as $5 billion this year, one of the people said. Russia’s Finance Ministry confirmed that the sides were negotiating a loan, without further details. Vitaliy Lukyanenko, Ukrainian Prime Minister Mykola Azarov’s spokesman, declined to comment.

Yanukovych is scheduled to meet his Russian counterpart Vladimir Putin in Moscow tomorrow as the economy struggles with its third recession since 2008 and foreign-currency reserves at a seven-year low. The country needs at least $10 billion to avoid default, First Deputy Prime Minister Serhiy Arbuzov said Dec. 7. The government has failed to reach an deal over a $15 billion facility with the International Monetary Fund, disagreeing over energy subsidies.

“A relatively small loan -- $1 billion to $2 billion -- under loose conditions is quite possible, which could become a rare piece of positive news on Ukraine,” Vladimir Osakovskiy, the Moscow-based chief economist for Russia at Bank of America (BAC:US)Merrill Lynch (MER:US), said in an e-mailed note to clients today. “A larger loan, especially $15 billion, will most likely require considerable commitments from the Ukrainian side.”

Bonds Gain

The prospect of a Russian deal boosted Ukrainian assets, pushing the yield on the government’s dollar debt due in 2023 down 23 basis points, or 0.23 percentage point, to 9.93 percent, the lowest since Nov. 28, according to data compiled by Bloomberg. OAO Gazprom rose 2.2 percent to 136.35 rubles by 6 p.m. in Moscow, snapping a four-day decline.

The cost of insuring the country’s debt for five years using credit-default swaps rose 14 basis points to 1,070,the third-highest in the world after Argentina and Venezuela, data compiled by Bloomberg show.

The second-most populous ex-Soviet country last month backed out of a trade deal with the EU in favor of closer ties with Russia, sparking the country’s biggest protests in almost a decade. Yanukovych walked away from the EU deal after Russia, which supplies 60 percent of Ukraine’s natural gas and buys a quarter of its exports, threatened trade sanctions.

‘Purely Economic’

Azarov on Nov. 22 said motivation for scuppering the treaty was “purely economic,” with the government making the “only possible” choice. A decline in trade with Russia has led to falling industrial production, “pushing Ukraine to the edge of huge social and economic troubles,” he told lawmakers in Kiev a day after making the u-turn. Signing the EU accords would have pushed the country into default, he said Dec. 13.

Putin and Yanukovych will lead discussions in Moscow tomorrow, with a “substantial” package of agreements set to be signed, the Kremlin said in an e-mailed statement. Officials will discuss the key questions of bilateral relations, including energy, agriculture, investments and others, according to the statement.

Ukraine owes about $20 billion and 280 billion rubles ($8.5 billion) to Russian banks including Vnesheconombank, OAO Sberbank, OAO Gazprombank and VTB Group, Putin said Nov. 26. The country owes more than $30 billion in total “loans and quasi-loans” to Russia, including a $2 billion advance payment for gas transit, he said.

To contact the reporters on this story: Ilya Arkhipov in Kiev at iarkhipov@bloomberg.net; Evgenia Pismennaya in Moscow at epismennaya@bloomberg.net; Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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