Moody's Investors Service has said that the negotiations between Ukraine and Russia on restructuring of Ukraine's $3 billion eurobonds bought by the National Welfare Fund (NWF) of Russia will be protracted and contentious.

"Although we expect that the Russian bond will eventually be restructured, probably under similar terms as received by other bondholders, any such negotiations are likely to be protracted and contentious," Moody's said in the survey, a copy of which has been sent to Interfax-Ukraine.

Moody's said that the change of the Policy on Non-Toleration of Arrears to Official Creditors by the International Monetary Fund (IMF) is credit positive for Ukraine, because it allows the country to avoid having to decide between scuppering its IMF program or tapping into its foreign exchange reserves to make a $3 billion payment to Russia.

"The new policy negates the debate surrounding the bilateral/commercial nature of the Russian bond, and thereby permits Ukraine to miss the 20 December payment without jeopardizing its EFF program and the associated lending of up to $6 billion that compliance with the program would free up in the next three years," Moody's said.

As reported, the IMF Board of Directors approved reforming the fund's Policy on Non-Toleration of Arrears to Official Creditors on December 8, 2015.