Soviet Debt Payment Terms Laid Out

The London Club of commercial creditors announced over the weekend terms by which Russia would repay $32 billion in debt inherited from the Soviet Union, but analysts said Monday that debt markets were unfazed by the news.


The paper, called Vnesh bonds, even lost ground during the day after maintaining a three-year high of 44.375 cents to the dollar reached Thursday, settling late in the day at 43 bid and 43.5 ask, according to Andre Yashchenko, fixed income and banking analyst at United City Bank.


Traders said the paper slid because foreign investors were showing a reluctance to maintain their positions in Russia's other sovereign debt market, MinFin bonds, which cover debt issuances since the fall of the Soviet Union.


Creditors have until Aug. 27 to decide whether to back the London agreement, which would refinance $25.5 billion in principal and $7 billion in interest into new paper with maturities ranging up to 25 years.


Although none of the debt was forgiven, the club agreed to a seven-year grace period before payments need be made.


The market has been awaiting the terms since last November, when a deal was reached in principle between Russia and the banks. However, bankers said any fuel expected from the oft-delayed announcement was used up long ago, and that Vnesh is riding the political wave that has come to dominate Russian markets.


"I think most aspects of the deal have been factored in," said Richard Deitz, head of fixed income for Renaissance Capital. "In any event, Vnesh is down, but my read is it's down because people are beginning to worry a little bit about the electoral risk here."


"You've got a huge event coming up," he said, referring to the presidential vote June 16 in which incumbent Boris Yeltsin faces a challenge from a resurgent Communist Party let by Gennady Zyuganov.


"It was pretty easy for people to beat their chests two weeks ago and pretend that they weren't worried," Deitz said. "It's gut-check time now."


However, Yashchenko said that just as political rumors caused the earlier rise in Vnesh and perhaps now its decline, a Yeltsin victory will reinvigorate the market. "They may grow significantly, even 5 or maybe 10 percent more," he said.