LONDON, Oct 10 (Reuters) - Merchant International ispursuing Ukraine's Naftogaz in the English courts over a $21.8million debt, a source close to the Delaware incorporated firmsaid, in a case that raised concerns of a possible default atthe state-owned energy company.
A Kiev finance ministry official said on Tuesday a Londoncourt had frozen part of a $75.8 million eurobond coupon paymentby Naftogaz on behalf of an unnamed third party, forcing thecash-strapped state to pay twice to avert default by Naftogazand any knock-on effect on other sovereign bonds.
Naftogaz, whose bond is fully guaranteed by the Ukrainiangovernment, paid the delayed coupon on Wednesday to ensure itreached bondholders before a 10-day grace period expired a daylater.
Analysts say any failure to pay by Oct. 10 would have led toa default that could eventually have triggered cross-defaultprovisions on billions of dollars in sovereign debt.
A source close to Merchant, who emphasised the company wasguided only by "commercial considerations", said on Thursdaythere had been repeated attempts to try and resolve the dispute,including direct appeals to the Ukrainian government.
"There is a valid and enforceable English judgment and theremaining ... debt is $21.8 million. Naftogaz refuses to executeand pay the judgment voluntarily. Merchant wishes to pursuelawful means to protect its rights," the source said.
London law firm Hogan Lovells confirmed that it was actingfor Merchant in this dispute but declined to comment on anydetails. Legal counsel for Naftogaz declined to comment.
The case hinges on a deal struck in Dec. 1997 betweenNaftogaz's predecessor, Ukrgazprom, and Russian oil and gascompany Gazprom, under which Gazprom was to supplyRussian national gas to the Ukrainian company, according tocourt documents.
As part of the deal, Ukrgazprom agreed to pay certain debtsof a Gazprom subsidiary, Surgutgazprom, to a Russian companycalled Severstudstroy. Under a subsequent deal in Dec. 1998,Severstudstroy assigned its contractual rights againstUkrgazprom to Merchant International.
Merchant received no payment and, in Jan. 2002, brought aclaim against Naftogaz in the Kiev Commercial Court. However,after a series of legal skirmishes, Merchant was unable torecover the debt in Ukraine because of a 2005 law that suspendedthe execution of judgments against energy companies.
It began UK proceedings in April 2010. Under English CommonLaw principles claimants can enforce any foreign money judgmentin English courts with a new claim.
- Company Legal & Law Matters