Ukraine and Russia appear all but certain to take their dispute over a $3 billion Eurobond to court after Ukraine said it would not repay the bond when it matures next week, prompting Russia to cry default and say a legal battle was now on the cards.
Ukraine has included the two-year bond which matures on December 20 in external commercial debt it is restructuring to shore up its war-torn economy.
But Russia, whose political relations with Ukraine are at rock bottom, has refused to accept these terms, insisting the bond is an official country-to-country loan, not commercial debt.
Prime Minister Arseny Yatseniuk said on Friday that Ukraine would not repay the Eurobond when it matures and that Kiev was geared to fight the issue in court.
A moratorium on repayments would be in place "until the acceptance of our restructuring proposals or the adoption of the relevant court decision ... We are prepared for court action from the Russian side," he said.
The finance ministry in Kiev said it was still committed to negotiating a restructuring agreement in good faith with Russia, but the Kremlin said the moratorium sent a clear message.
"This is the recognition of their default," Dmitry Peskov, spokesman for Russian President Vladimir Putin, told reporters on a conference call. "Effectively, there are only legal prospects now."
The Eurobond in question was issued by the government of former President Viktor Yanukovich just two months before he fled in the face of bloody street protests triggered by him seeking to halt Ukraine's swing towards European integration in favor of closer economic ties with Russia.
After he fled, Russia annexed Ukraine's Crimea in March 2014 and threw its backing behind a rebellion by separatists in eastern Ukraine.