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Ukraine cites Russian threats in $3 billion debt-case defence

LONDON/KIEV (Reuters) - Ukraine filed its defence on Friday with a British court over a $3 billion (2.28 billion pounds) Eurobond owed to Russia, arguing that the original agreement was invalid because “threats and pressure” from the Kremlin forced it into the deal, the document showed.

A Ukrainian national flag flies over the parliament building (Verkhovna Rada) in central Kiev, Ukraine, March 5, 2016. REUTERS/Valentyn Ogirenko

The lawsuit has become another battlefront for the two countries, whose relations are at an all-time low following Russia’s annexation of Crimea in 2014 and support for pro-Russian separatists in eastern Ukraine in the wake of Kiev’s pivot towards Europe.

Russia filed a lawsuit against Ukraine in February at London’s High Court demanding repayment of the $3 billion Eurobond, which matured on Dec. 20.

“Ukraine’s defence explains that the loan agreement is invalid and unenforceable for multiple reasons,” a statement by Ukraine’s foreign and finance ministries’ statement said.

The full text of the defence, seen by Reuters, accuses Russia of applying “massive, unlawful and illegitimate economic and political pressure to Ukraine in 2013”, forcing the country to accept Moscow’s financial support instead of striking up closer ties with the EU.

Ukraine also cites “illegitimate threats and pressure” from Moscow including threats to its territorial integrity and illegal trade restrictions in the document.

This meant Kiev lacked the capacity to actually enter into such a loan deal, Ukraine said in its defence.

The Russian Finance Ministry did not immediately comment.

Moscow now has 21 days to file a reply to the defence with the London courts, but it can also request an extension, said Alex Gerbi, partner at Quinn Emanuel Urquhart & Sullivan, the law firm representing Kiev in this case.

The Eurobond was issued by the government of former president Viktor Yanukovich just two months before he fled to Russia in February 2014 amid bloody street protests.

The unrest began when Yanukovich sought to halt Ukraine’s move towards European integration in favour of closer economic ties with Russia.

Ukraine has refused to repay the bond, including it in the external debt it earmarked for restructuring as part of an International Monetary Fund-led bailout programme. Moscow insists that the bond is sovereign debt and should not be part of the programme.

Editing by Hugh Lawson