January 27, 2014 / 5:48 PM / 6 years ago

Ukraine borrows $2 billion from Moscow, signals bailout on track

KIEV (Reuters) - Ukraine is borrowing another $2 billion from Russia on the same terms as a $3 billion Eurobond sold in December, in a sign that Moscow is pushing on with a $15 billion bailout despite concern about violence at anti-government protests in Kiev.

Pro-European integration protesters wearing masks depicting Russian President Vladimir Putin (R) and Ukrainian President Viktor Yanukovich joke during a rally in Independence square in Kiev December 22, 2013. REUTERS/Marko Djurica/Files

In a geopolitical battle with the European Union after Ukraine spurned a trade pact with the 28-state bloc, Russia agreed on credits and cheaper gas for Kiev in December to help its fellow former Soviet republic meet huge debt payments.

The deal brought a breathing space for the government but the protests have since spiralled into violent unrest in the capital and other cities, forcing President Viktor Yanukovich into talks with opponents who mistrust Moscow.

The Ukrainian government said in a statement on Monday it was issuing $2 billion in Eurobonds to Russia on the same terms as in December, bringing the total amount borrowed - over two years at an interest rate of 5 percent - to $5 billion.

Financial analysts said the statement sought to signal that all is well with the bailout, intended to help Kiev cover external debt repayments of $8 billion this year and boost depleted central bank reserves.

“This is a kind of verbal intervention to partially or completely calm people,” said Oleksandr Valchishen of InvestCapital Ukraine, “to appease business and people who could move a lot of money, put pressure on the hryvnia.”

Olena Belan, of Dragon Capital, said: “Russia is continuing to support Ukraine because this was the agreement.”

In Moscow, the Kremlin and Finance Ministry did not immediately comment. But, signalling Russia is not having second thoughts about the bailout, a government source said: “The help will be extended.”

Another government official said, however, it was not clear when Moscow would make the purchase of the further $2 billion.

Underlining that the bailout is as much as political decision as a financial move, the source said: “It’s not the Finance Ministry’s decision. It is the Kremlin’s decision.”


President Vladimir Putin said in December the bailout was an act of brotherly love for Russia’s fellow Slavs in Ukraine. He denied it was a way to keep Ukraine out of the EU’s clutches in a tug-of-war over the country of 46 million which is a large trading market and is rich in mineral resources.

Russia regards Ukraine as part of its traditional sphere of influence and the deal was widely seen in Moscow as a victory for Putin that kept Kiev in its orbit.

Since then at least six people have been killed in clashes, according to the prosecutor’s office and medics, and the crisis has deepened tension between Russia and the West.

Uncertainty about the fate of the Ukrainian government has mounted because Yanukovich has offered important posts to the opposition, including the role of prime minister.

The thought of the opposition joining the government in Kiev is alarming for Russia because its leaders say they would “take the country into the European Union”.

Russian Foreign Minister Sergei Lavrov expressed concern last week that the situation in Kiev was spinning out of control and warned European governments not to meddle in Ukraine.

Russian business daily Vedomosti quoted an unnamed Russian official as saying Moscow would “review the situation” if the political risks in Ukraine grew.

But Putin has said nothing in public of the violence - Russia’s options are limited and Vedomosti’s source said there had been no discussion of halting credits to Kiev.

Dmitry Peskov, Putin’s spokesman, told Russian newspaper Komsomolskaya Pravda last week that Moscow was watching events closely and sometimes with pain but added: “Interfering in (Ukraine’s) internal affairs is for us unacceptable.”

A presidential aide, Yuri Ushakov, said contacts with the Ukrainian government were continuing at the top level but declined to give details.

Additional reporting by Lidia Kelly and Jason Bush in Moscow; Writing by Timothy Heritage; Editing by Douglas Busvine and Alison Williams

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