Ukraine threatens 'legal war' with Russia over debt restructuring agreement

Ukraine threatened today to launch a "legal war" with Russia after Moscow held out on a vital debt restructuring agreement to stop the crisis-torn nation from hurtling into default.

The Ukrainian government gave Moscow a strict October 29 deadline to either accept the same terms as its other debt holders or face it in the international courts.

"All of Ukraine's creditors by their majority -- which stands at more than 75 per cent of the creditors' committee votes -- agreed to write off Ukraine's debt," Ukrainian Prime Minister Arseniy Yatsenyuk told a televised government meeting.

The Western-backed leader said the deal at talks on Wednesday in London would provide his cash-strapped country with an immediate write-down of USD 3 billion (2.6 billion euros) and restructure future debt worth USD 8.5 billion.

Ukraine appeared to step back from the brink of default when it reached a 20-per cent write-down agreement in August with four Western investments titans that own about half of Ukraine's USD 18 billion in maturing commercial debt.

But that deal had to also be backed by other bondholders who demanded better terms. These funds owned debt with short-term maturities and would have had to wait much longer to see a return on investments made over the past 10 years.

Bloomberg reported that the holdouts had agreed to join the other creditors after several rounds of negotiations last week.

The final vote itself took place behind closed doors in the London office of one of Ukrainian government's financial advisers.

The main sticking point remains Russia, Ukraine's eastern neighbour that bought a USD 3.0 billion Eurobond from Viktor Yanukovych just months before his ouster by pro-EU demonstrators in February 2014.

Russia denies playing any part in the pro-Kremlin insurgency that swept eastern Ukraine in the wake of his fall and views the bond as a sovereign loan that is not subject to the commercial deal agreed with the Western funds. Moscow wants the money paid back in full by the December 20 deadline.

It has otherwise threatened to file a lawsuit against Kiev in a tribunal that may declare Ukraine in official default -- a decision that would complicate the release of further assistance to Kiev from the International Monetary Fund.