KIEV, June 5 - 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 reported 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 that was to fall due on Wednesday and receive the remainder in market-tradable securities.