Will The First $3 Billion Of A Ukraine Bailout Immediately Go To Russia?

Tyler Durden's picture




 

Submitted by Pater Tenebrarum of Acting-Man blog,

This is really too funny. Apparently, the Ukraine owes $3 billion to Russia in bonds that have been issued under UK law. One of the stipulations of the bonds is that if the Ukraine's debt-to-GDP ratio should exceed 60%, the bonds will become immediately callable.

Once the Ukraine gets funding from the IMF,  this is of course going to happen right away – its debt-to-GDP ratio will then most definitely exceed 60%, so the first $3 billion of any aid the Ukraine receives in the form of loans will right away flow into Russia's coffers.

Of course there may be litigation first, but as Greek bondholders have found out, all those who held bonds issued under UK law were actually paid in full, while everybody else had to accept the 'PSI' and could basically go pound sand.

Of course it was all 'voluntary', but funny enough, the holders of Greek bonds issued under UK law didn't turn out to be as altruistic as all the other ones. At least we have not heard of any 'voluntary' contributions made by them. It seems rather doubtful that Mr. Putin will be eager to become a voluntary contributor to bailing out a government which he deems illegitimate. Instead he's going to take his money and run – or alternatively, make as-of-yet unspecified demands.

According to NBC:

As Western leaders prepare a bailout package for embattled Ukraine, they face a startling irony: Thanks to the almost bizarre structure of a bond deal between Ukraine and Russia, billions of those dollars are almost certain to go directly into the coffers of the Putin government.

 

As CNBC has reported, some aid money is bound to go into Russia as a result of energy trade and other economic factors. But the situation is actually much more acute than just that: An existing agreement between the two countries makes an immediate, direct transfer from Ukraine to Russia legally enforceable.

 

In December, Russian President Vladimir Putin agreed to lend Ukraine $15 billion. Few details were released at the time, except that Ukraine would issue bonds and Russia would buy them in installments through 2014.

 

The first and only installment occurred in late December, while then-Ukrainian President Viktor Yanukovych was still in charge in Kiev. The second installment was slated to happen in late February, but it never occurred, because the pro-Russian president had fled Ukraine and a new government was in place.

 

That first installment was $3 billion — in U.S. dollars, as dictated by the terms of the deal — issued on Dec. 24. It carries a lenient interest rate considering the shattered state of Ukraine's economy: a coupon of only 5 percent, payable semi-annually on June 20 and Dec. 20. It is short-term debt, maturing on Dec. 20, 2015.

 

Startlingly, the notes are governed by U.K. law and subject to the exclusive jurisdiction of British courts. And most crucially, there is an odd clause in the bonds that has a direct impact on European and American taxpayers, as CNBC learned through a review of the bond agreement:

 

Paragraph 3 (b) under Covenants:

 

(b) Debt Ratio So long as the Notes remain outstanding the Issuer shall ensure that the volume of the total state debt and state guaranteed debt should not at any time exceed an amount equal to 60 percent of the annual nominal gross domestic product of Ukraine.

 

The implications of that clause are that the minute the West or the International Monetary Fund extends a large loan to Ukraine, that country will almost certainly have a debt-to-GDP that exceeds 60 percent, immediately putting the Russian loan into default. That gives Russia the right to demand immediate repayment. And because the bonds are governed by British courts — which, presumably, neither Ukraine nor Russia can manipulate — it would be extremely difficult for Ukraine to avoid making the payment, using its new bailout money.

 

(emphasis added)

The American and European tax cows will no doubt be thrilled.

 


 

Putin-gimme

Gimme!!!   Putin unexpectedly sees his money reappear via IMF magic.

(Photo source unknown – The Web)

 


 

Putin-GIMMMEEE

If he doesn't get it right away, he will look like this.

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Fri, 03/14/2014 - 14:49 | 4549027 CrashisOptimistic
CrashisOptimistic's picture

Sorry, we've seen this movie before.  If a declared Greek default triggering swaps would take the system down, then the agency that does the declaration will be given their instructions.

If a debt/GDP ratio would cause some horrible event, then the agency that computes that ratio will be similarly given their instructions.

Fri, 03/14/2014 - 14:51 | 4549045 LawsofPhysics
LawsofPhysics's picture

Correct, let me be clear.  Nothing really changes until the supply lines break in earnest.

I remain long sharecropping, physical assests, and a dependable tribe.

Fri, 03/14/2014 - 15:05 | 4549112 Boris Alatovkrap
Boris Alatovkrap's picture

You are watch...! When USSA or IMFUBAR is provide emergency loan for Ukraine, Ukraine is not pay $3B owe to Russia, but is use for purchase weapon from USSA military industrial complex. You are shortly witness abandonment of law and principle, not by only Ukraine, but by is every Western Nation. More amazing, bond and investment market is not to even twitch muscle. You are mark words of Boris!

Fri, 03/14/2014 - 15:09 | 4549132 Missiondweller
Missiondweller's picture

I think allssues of law ended when Russia invaded a sovereign country who's borders they agreed to respect.

Fri, 03/14/2014 - 15:13 | 4549147 fonzannoon
fonzannoon's picture

Ukraine will use the 3bil to buy facebook on this dip.

Fri, 03/14/2014 - 15:35 | 4549261 asteroids
asteroids's picture

IF the Ukrane does default on its bonds to Russia. Russia will invade and take possesion of the capital the bonds were pledged against. All perfectly legal.

Fri, 03/14/2014 - 16:23 | 4549534 eurogold
eurogold's picture

Ukraine did it to themselves, so yes the money goes to Russia.

Fri, 03/14/2014 - 16:58 | 4549704 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

The American and European tax cows will no doubt be thrilled.

Mooooooooooooooo!

Fri, 03/14/2014 - 23:32 | 4551011 WMM II
WMM II's picture

ukraine ceases to exist if crimea breaks off.

what is left may be labeled 'ukraine' on the maps, but it clearly is no longer the same entity it once was.

poof.

and there goes all old ukrainian debt.

it would be utter and complete nonsense for the 'laws of the u.k.' to claim reign over that.

as for the legality of invasion as a means of debt collection (putin invades ukra)... ummm let's see... probably a response an order of magnitude greater than that.

the world is done with these kinds of antics.

 

:)

 

Fri, 03/14/2014 - 15:14 | 4549153 Jack's Digestib...
Jack's Digestible Ideas's picture

Don't feed the trolls.

Fri, 03/14/2014 - 15:22 | 4549188 Toolshed
Toolshed's picture

"Don't feed the trolls."

.......or the .gov paid shills.

Fri, 03/14/2014 - 16:00 | 4549429 Lost My Shorts
Lost My Shorts's picture

Troll or not, the guy's got a point.  What would UK courts say about paying debts to someone who invaded you?  Could the debt be declared odious if incurred under the former baroquely corrupt pro-Russian president?  This story is more complicated than a Tennessee Williams play, and the tickets to watch are a damned lot more expensive.

Let's just skip it and watch bball, or paint dry, or anything else, pleeeeeeze.

Fri, 03/14/2014 - 20:24 | 4550422 silvermail
silvermail's picture

Again: The concept of "invasion" can not be used when requests for military assistance legitimate and democratically elected President, with the support of 80% of the population.

Fri, 03/14/2014 - 15:15 | 4549157 TheFourthStooge-ing
TheFourthStooge-ing's picture

Cellardweller still swallowing the MSM line. He probably believes in the "recovery" too.

Because Obama.

Fri, 03/14/2014 - 15:20 | 4549178 Uncle Remus
Uncle Remus's picture

Of course those laws don't apply to the US or Israel.

Fuck.

You.

Fri, 03/14/2014 - 15:21 | 4549181 Toolshed
Toolshed's picture

"I think all issues [sic] of law ended when Western powers broke their promise, to Russia, to not set up shop on Russia's doorstep."

FIFY

Fri, 03/14/2014 - 15:31 | 4549189 Chief KnocAHoma
Chief KnocAHoma's picture

Surely we will impose certain limitations on how the money can be spent. When I was in college and my parents sent me money they said it was for food, gas, schooling etc, not to be used for beer, weed, chicks...

Ok so that was a bad example, but you get my point.

Fri, 03/14/2014 - 20:40 | 4550475 silvermail
silvermail's picture

According to law, the credit - is the property of the borrower. Since credit, haved all three signs forming the concept of " ownership": Possession, Use and Disposal.
Instead obtained ownership funds from the Creditor,
debtor acquires monetary liabilities to the Creditor. That is, the debtor is obliged to return the money to the Lender , in the period and under the conditions defined by the Credit Agreement.
In such circumstances, the court will be forced to foreclose money from Ukraine to Russia's favor, regardless of the purpose and objectives of the loan received by Ukraine from any third parties, including the United States.

Fri, 03/14/2014 - 15:26 | 4549208 UpAndComing
UpAndComing's picture

This is what happens when you forget the /sarc

Fri, 03/14/2014 - 15:46 | 4549354 kchrisc
kchrisc's picture

"I think allssues of law ended when Russia invaded a sovereign country who's borders they agreed to respect."

"Law," and whatever, went out the window on 20 March, 2003 in a place called Iraq.

 

"Mission Accomplished": Still treasonously funny after all these years.

Fri, 03/14/2014 - 20:22 | 4550416 silvermail
silvermail's picture

The concept of "invasion" can not be used, when requests for military assistance legitimate and democratically elected President, with the support of 80% of the population.

Sat, 03/15/2014 - 08:21 | 4551532 BigJim
BigJim's picture

 I think allssues of law ended when Russia invaded a sovereign country who's [sic] borders they agreed to respect.

Technically speaking, they haven't invaded Ukraine yet. They have the right to station up to 25,000 troops in Crimea, and, as far as I know, they're still all in there.

 

Fri, 03/14/2014 - 17:52 | 4549919 LMAOLORI
LMAOLORI's picture

 

 

Some people are willing to spend us into the ground for this regime change. I don't really like to use the kind of filthy language that it takes to describe how I feel about them.

Sat, 03/15/2014 - 04:03 | 4551370 MeelionDollerBogus
MeelionDollerBogus's picture

Wait, how is Ukraine get any moneys if is UK court?

If UK court break bond and law, how is other bond stay above zero worldwide? Many bond rehypothecates in London.

Fri, 03/14/2014 - 15:42 | 4549316 mac768
mac768's picture

Sure, just wait until Russia shuts the GAS OFF Europe

Fri, 03/14/2014 - 15:20 | 4549154 y3maxx
y3maxx's picture

This will not end well friends. Pretty much every option the West utilizes to protect the US Dollar Reserve Fiat, we can note an increase in abandonment of Law.(Thanks Boris) With a point of no return closing in, a desperation False Flag occurs and WW#3 breaks out.

Fri, 03/14/2014 - 15:55 | 4549402 BlindMonkey
BlindMonkey's picture

I will gladly trade DC and NYC for Moscow under 2 conditions:  I want the Fabrage eggs out of Moscow and I want the shuttle Enterprise out of NYC and moved to Houston where it belongs first.

 

Everything in DC can stay...

Fri, 03/14/2014 - 15:27 | 4549212 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

If a debt/GDP ratio would cause some horrible event, then the agency that computes that ratio will be similarly given their instructions.

Bullish for all those "Friends of Angelo" like Moody's, S&P, Fitch, LPS, MERS, Linda Green, et al. Their math will always show debt to GDP of less than 60 percent.

Now everybody just keep quiet and don't mention Egan-Jones, dammit.

Fri, 03/14/2014 - 15:48 | 4549367 Panafrican Funk...
Panafrican Funktron Robot's picture

It will be interesting to see how this plays out.  Not paying the Russians seems like the worst case scenario here as far as systemic stability, but maybe systemic stability is no longer the goal?

Sat, 03/15/2014 - 04:01 | 4551368 MeelionDollerBogus
MeelionDollerBogus's picture

And that precedent will apply to all jurisdictions, all bonds, and the bond market worldwide will collapse. It's like deciding if the Russians launch nukes you detonate your own - without launching them.

SMRT.

Fri, 03/14/2014 - 14:50 | 4549030 crazzziecanuck
crazzziecanuck's picture

Hilarity ensues.

 

This assumes that the Western parties would actually honour the terms of the agreement.  But given how we break them whenever we see fit, it's unlikely.  After all, George H Bush promised Gorbachev that NATO wouldn't expand into Eastern Europe as the price to be paid for German Reunification.

Fri, 03/14/2014 - 15:20 | 4549168 Urban Redneck
Urban Redneck's picture

Rex Tillerson himself will get on the phone and tell Pillsbury dough-boy Cameron to pull the pedophile files on the entire British judiciary if need be.  

Russian bankers are just as sophisticated as NY bankers when it comes to making sure they get their "fair share"

If the US or UK does anything to try and circumvent or neuter the Washington Convention, then ALL the offshore assets the globalist oligarchy are open and fair game for seizure...

It's the TPTB equivilent of the "Nuclear Option."

Fri, 03/14/2014 - 15:25 | 4549203 CrashisOptimistic
CrashisOptimistic's picture

Given talk of sanctions and targetting these alleged "oligarchs", do you really think they haven't by now moved their money?

Fri, 03/14/2014 - 15:38 | 4549295 Chief KnocAHoma
Chief KnocAHoma's picture

I'm beginning to think that is part of the strategy. If money is moving economy good. If not economy bad.

It also leaves trails and defines loyalties. Kind of like hearding it all to one point to be eventually stolen en mass. 

One very wise man preaches Get Out Of The System.

Fri, 03/14/2014 - 15:58 | 4549418 Urban Redneck
Urban Redneck's picture

The "money" can be moved or printed, but tangible assets can't- like the tens of billions of infrastructure Exxon has in Russia and hundreds of billions in future oil to extract and sell as pass on as dividends to "shareholders" (both corporate and PSA), even if the major industrials and corporations repatriate their cash, they're dead in the water without their physical assets (except for the banks, and that would require QE an order of magnitude larger than what they've already done).  

Fri, 03/14/2014 - 20:59 | 4550540 silvermail
silvermail's picture

Dispute Resolution in ICSID is only possible if the consent of Russia. Since in the contract of credit, already directly was spelled jurisdiction - British.

Sat, 03/15/2014 - 13:35 | 4552180 Urban Redneck
Urban Redneck's picture

The current US threat is sanctions against Russian FDI in other countries, since Russia hasn't ratified the Washington Convention, they have a lot of latitude in terms of expropriation and foreign investors in Russia have very few avenues of recourse.  Moreover the Washington Convention is THE legal foundation of corporatist globalization, so undermining it opens the door to nations which have already ratified the Convention to engage in more strategic expropriation.  Also, the puppet masters pulling BHOs strings to push TTIP &TPP need the Washington Convention in place for the those pipe-dreams to be implementable.  Finally, as a matter of common practice UK governing law used in most contracts because it is the most sophisticated and established body of governing corporate law (when both parties have a civil law framework- generally another jurisdiction is chosen), which provides significant additional revenue and authority to TPTB in the City... 

Fri, 03/14/2014 - 15:22 | 4549184 Uncle Remus
Uncle Remus's picture

Jeebus man. I read "Hillary ensues". I got to Tango before it sunk in...

Fri, 03/14/2014 - 14:49 | 4549032 lolmao500
lolmao500's picture

Pentagon says no truth to Russian news reports that an American military drone has been brought down in Crimea. No such flights taking place

Well then, you know it happened. Apparently the drone was hacked and brought down intact by the Ruskies... The Pentagon must have nightmares about the drone they lost over Iran that got hacked... Seems your cunning plan of using drones to wage war might not go as planned...

Fri, 03/14/2014 - 14:50 | 4549040 McMolotov
McMolotov's picture

Don't believe anything until it's been officially denied.

Fri, 03/14/2014 - 14:51 | 4549046 crazzziecanuck
crazzziecanuck's picture

Didn't Iran bring one down, the Pentagon denied the loss, then Iran put it on primetime TV the same day?

Fri, 03/14/2014 - 14:53 | 4549055 CrashisOptimistic
CrashisOptimistic's picture

Credible report.  No reason to use drones.  They are inferior to satellite imagery, given just a few hours of no clouds.

Fri, 03/14/2014 - 15:02 | 4549098 pods
pods's picture

I will never forget the ZH post on the Iranians showing off the drone.

"We believe this is where it eats."

http://www.zerohedge.com/news/iran-releases-video-captured-us-drone

Fri, 03/14/2014 - 15:11 | 4549140 Missiondweller
Missiondweller's picture

No. It was a "Trojan Horse" to infect Iran computers with the Stuxnet virus.

Sat, 03/15/2014 - 09:02 | 4551553 BigJim
BigJim's picture

Mohammed: Hey, Achmed! Look! They left a USB drive in the drone's glove compartment!

Achmed: And... and... it's labelled... 'Cock-hungry cumsluts!'!!! Quick, plug it in!

Mohammed: But the only computers in Iran advanced enough to have a USB port are in Natanz!

Achmed: No worries! I know the security chief! You've met my sister; you just KNOW my brother-in-law will be wanting to look at this!

etc, etc...

Fri, 03/14/2014 - 15:43 | 4549324 Chief KnocAHoma
Chief KnocAHoma's picture

Yes and weren't two Iranians on MH370 and a muslem electrical engineer with flight simulator experience?

Fri, 03/14/2014 - 15:19 | 4549173 agent default
agent default's picture

Remember the U2 incident and Khrushchev's shoe?

Fri, 03/14/2014 - 15:37 | 4549283 McMolotov
McMolotov's picture

Bono always deserves to get kicked in the face.

Fri, 03/14/2014 - 16:58 | 4549701 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Bono always deserves to get kicked in the face.

"I cannot work with this singer."
--
Konrad "Conny" Plank, to Brian Eno

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