Ukraine Probes Ex-Minister Over $3 Billion Russian Bond

By Daryna Krasnolutska

Ukraine opened a criminal probe into former Finance Minister Yuriy Kolobov over a $3 billion bailout by Russia last year.
Kolobov abused his office and violated the budget law by organizing the bond sale and illegally transferring a $450,000 fee to Russia’s state-run VTB Capital for placing the debt, the State Security Service, or SBU, said today in a statement on its website. Other “top officials” were involved, according to the Kiev-based service, though it didn’t name them.
Ukraine’s then-President Viktor Yanukovych agreed on a $15 billion financial rescue package with Russian leader Vladimir Putin in December. He was ousted two months later after deadly protests sparked by his rejection of a European integration pact. Ukraine accuses
Russia of stoking the conflict that’s ravaged its easternmost regions. Russia denies involvement.
Dmytro Gromakov, a spokesman for Kolobov, couldn’t comment immediately when contacted by Bloomberg.
The $3 billion bond matures next year and carries a yield of 5 percent. The Ukrainian government’s dollar-denominated debt due 2017 advanced, pushing the yield down 11 basis points to 14.54 percent as of 1:39 p.m. in Kiev, the lowest level since Sept. 19, data compiled by Bloomberg show.
The Russian bond sale was the first of five planned offerings, with Ukraine planning to draw down the full amount of its neighbor’s rescue. The new administration, led by Prime Minister Arseniy Yatsenyuk, later agreed with the International Monetary Fund on a $17 billion bailout to stave off bankruptcy.

More Aid

The Washington-based lender has said the aid package may need to be expanded because of the economic disruption of the fighting in the east and after Russia cut natural gas supplies to Ukraine over unpaid bills.
The case against Kolobov probably isn’t an attempt to invalidate the Russian bond, according to Olena Bilan, chief economist at Dragon Capital.
“It’s unlikely the criminal case will lead to the bond being ruled illegal,” she said by phone from Kiev. “It’s not in Ukraine’s interest because the prospectus says that if the transaction is later ruled unlawful, it will be considered an event of default.”