MOSCOW, June 5 (Reuters) - Ukraine will repay $1 billion borrowed from VTB and issue a further $1 billion in two-year bonds with a coupon of 7.95 percent to the Russian lender, the Finance Ministry said on Tuesday.
"These will be two-year bonds - probably external. VTB will get them," First Deputy Finance Minister Anatoly Myarkovsky said.
Sources close to VTB had said the state-controlled Russian bank wanted to roll over part of a $2 billion Ukrainian loan and receive the remainder in market-tradable securities.
The two sides held talks last week on the loan arrangement, amid continuing pressure from the International Monetary Fund on the Ukrainian government to reform subsidised gas prices to unblock a stalled financial aid package. (Reporting by Pavel Polityuk,; Writing by Douglas Busvine; Editing by John Bowker)