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. Last Updated: 07/27/2016

Government Confused On T-Bill Restructuring

The Finance Ministry on Friday sent out conflicting signals concerning its proposals on restructuring Russia's treasury bill debt.

Oleg Zhukov, press secretary to Finance Minister Mikhail Zadornov, said Friday that the ministry had already forwarded the restructuring proposal to the cabinet for approval, Reuters reported.

At the same time, Deputy Finance Minister Mikhail Kasyanov said the government will continue talks with foreign investors to work out acceptable restructuring terms.

"We plan to continue work to complete these issues next week," Reuters quoted Kasyanov as saying.

The deputy minister's remarks appeared to be aimed at defusing a crisis in relations between Russia and its creditors which developed in recent days.

Zadornov insisted in an interview with Interfax on Thursday that the creditors had approved the Finance Ministry's proposals. "They are based on agreements on financial terms which have been fully agreed upon and publicly acknowledged," the minister said. "What we are doing now is being done on fully agreed terms."

Foreign creditors have twice denied the existence of any final debt restructuring agreement between them and the Russian government. Deutsche Bank issued a statement to that effect Wednesday, and Credit Suisse First Boston followed suit Thursday. The two banks had been selected by creditors to lead talks with the Finance Ministry.

In reaction to Thursday's statement by CSFB, Zhukov told Interfax that the Finance Minister believes CSFB was speaking only for itself. "That is a statement by only one of the Western banks," Zhukov quoted Zadornov as saying.

A source in CSFB in London on Friday confirmed, however, that the statement had been made on behalf of 19 foreign banks which together own 90 percent of Russia's domestic debt held by foreigners.

The size of this debt, not including non-deliverable forward contracts between Russian banks and foreign investors, is 83 billion rubles ($4 billion).

"There's no doubt that no one [in the 19 banks] would contest CSFB's statement," said the CSFB executive. "How can there be a deal when the [foreign creditors'] committee was never presented with anything in writing? There's no official document to react to."

The source speculated that by his stubbornness, Zadornov may be preparing foreign T-bill holders for a scenario in which they will be presented with an "all-or-nothing" restructuring proposal.

Analysts also say that Zadornov, who has plenty of adversaries both in the government and the oil and gas industry, may be under pressure to come up with a final dealnow that both next year's budget and a docket of tax laws have been submitted to the Duma.

One analyst at a Western bank said that Zadornov is "dead wrong" about the integrity of CSFB's statement.

"Zadornov is either badly informed or he is stonewalling," said the analyst, who is based in London.

Generally, the mood in London on Friday was one of frustration. "These guys [from the Finance Ministry] just don't get it," said the analyst in London. "They have their priorities wrong. This whole thing will leave a sour taste in the world financial community, and Russia will be locked out of financial markets for years to come."

As it stands now, said the analyst, the current deal is worse than the one originally proposed in August.

"The Russians have stonewalled every initiative of creditors, and continue to regard a final deal as a zero-sum game."