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Ukraine hopes for U.S. support under Trump, IMF cash in early Feb: finmin

By Sujata Rao

By Sujata Rao

DAVOS, Switzerland (Reuters) - Ukraine "hopes and trusts" it will continue receiving U.S. financial and military support under the Trump administration, Finance Minister Oleksandr Danylyuk said, even if the incoming president boosts ties with Russia.

Republican Donald Trump, who will be inaugurated on Friday, has promised to thaw relations with Moscow and is widely expected to push to dismantle sanctions imposed in 2014 over Russia's annexation of Crimea and its support for pro-Russian separatists in eastern Ukraine.

In an interview published on Monday in the London Times, Trump raised the prospect of ending sanctions in return for a nuclear arms reduction deal [nL5N1F50VI].

Trump's overtures have raised concerns in Ukraine, which was saved from bankruptcy by an International Monetary Fund bailout and Western loans.

"U.S. clearly is a country that supported us in very difficult times and two revolutions when it was absolutely critical after Russian aggression. I believe that will continue," Danylyuk told Reuters on the sidelines of the World Economic Forum in Davos.

"Historically, Republicans have been very supportive and a couple of decisions such as a U.S. guarantee for bond issuance and provision of military support was initiated by the Republicans so we hope and trust that support will continue," he said.

Ukraine this week faces Russia in a UK court over a $3 billion debt it owes in the form of a Eurobond. Russia is demanding full repayment plus legal fees and interest, but Kiev says Russia should have participated in a 2015 debt restructuring [nL5N1F62I2].

Danylyuk said Ukraine argued that the debt was taken out under duress.

"We suffered huge losses which devastated our economy... It's our goal in the next three days to make sure our case is heard," he said in an interview late on Monday.

Asked if Ukraine was in a position to repay the money if it lost the case, he said: "If there is negative solution, an appeal is always possible."

IMF, PRIVATBANK

Danylyuk noted Kiev had been steadily reforming its economy to receive further tranches of the IMF loan, passing the 2017 budget with the required 3 percent deficit.

The tranche was expected at the beginning of February. "We are planning to receive around $1 billion," he said.

There were also plans for another U.S. guaranteed bond this year, he said, without giving details.

The IMF gave the thumbs-up to Ukraine's recent move to nationalize the country's biggest lender PrivatBank. Authorities had cited risky lending practices that left a capital shortfall of around $5.65 billion on the bank's balance sheet and said 97 percent of corporate loans had gone to companies linked to shareholders.

PrivatBank was the jewel in the crown of the business empire of tycoon Ihor Kolomoisky [nL5N1EE130].

While the state has issued bonds to recapitalize the bank, some creditors have protested a decision to "bail in" holders of Privatbank bonds and are threatening legal action.

PrivatBank's 2018 bond has fallen to around 30 cents in the dollar, according to Tradeweb data, and a subordinated 2022 issue trades around 10 cents.

Danylyuk said everything had been done in accordance with law and authorities had grounds to believe some of the bondholders were "related parties" to former shareholders.

"If you have strong suspicions and grounds to believe the bonds are held by related parties, you have no right not to bail in," he said.

"...The bondholders knew about the potential risk of Privatbank, they could have expected something like this."

(Reporting by Sujata Rao; editing by John Stonestreet)