West Wants More Time To Study T-Bill Plan

With 23 days left before the deadline to accept Russia's restructuring proposals on its treasury bills, Western banks holding the frozen securities say that they want more time to think it over.

A committee of 19 Western banks holding the GKOs met in London on Thursday and decided to tell the Russian authorities that they wanted the deadline extended because some elements of the restructuring package were not yet clear, Reuters reported.

In particular, the banks want to know whether they will be able to use the cash part of the settlement to buy Russian equities, and if so, which shares they would be able to buy.

The banks' request for a postponement came a day after the Finance Ministry said it wanted more time to work on the technical details of proposals that foreign holders of GKOs be allowed to buy Russian equities.

Clifford Chance, the law firm representing the 19 banks, was unavailable for comment Thursday.

Russia has proposed swapping frozen debt for 10 percent cash, 20 percent three-year non-interest-bearing bonds and 70 percent four- and five-year coupon-bearing paper.

The technical deadline for the offer is March 5 and the absolute deadline is March 15.

Foreign creditors represent about one-third of the ruble-denominated debt, which was valued at about $40 billion when it was frozen by the Russian government on Aug. 17, 1998.

The Finance Ministry looks to be approaching the question of a debt-equity swap more from the angle of what's in it for Russia than what will be attractive to the nation's creditors.

"The Finance Ministry is still trying to figure out how best to execute it from the Russian side, rather than from the foreign creditors' point of view," said Margot Jacobs, banking analyst at United Financial Group.

The key question is that of the repatriation of funds. Russia is only willing to let its creditors get their hands on rubles if it can ensure that they won't rush for the exits with the money, putting pressure on the nation's still-brittle currency.

But finding a way of doing so is a ticklish problem, said Sergei Prudnik, economic adviser at Troika Dialog's research department.

"There is no technical base to restrict the capital from leaving the equities and then repatriating," he said.

The Western banks can draw some hope from this week's closing of the Central Bank's OBR bonds Wednesday and the resulting pressure on Russia to attract more funds to the market for restructured Finance Ministry paper, or OFZs, analysts said.

Until there is a GKO settlement, foreign banks won't touch the OFZ market, Jacobs said.

"If the Finance Ministry wants the market for the reconstructed OFZs to revive, then they want the foreigners in sooner rather than later," she said.

Russian banks are already holding and trading the OFZs - they have little else in the way of ruble-denominated securities to hold - but foreign money would improve trade, sending yields down and raising liquidity, Jacobs added.