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. Last Updated: 07/27/2016

New Securities To Be Issued by Government

The Russian government will issue new securities to the holders of frozen treasury bills this month, but trade in the bonds is not likely to start until next year, a senior Finance Ministry official said Tuesday.

Bella Zlatkis, head of the Finance MInistry's domestic debt department, said in a telephone interview that though secondary market trading in the restructured T-bills is still officially set to start Dec. 15, foreign investors have asked for a delay.

"The launch of the secondary market is being reconsidered on the request from our foreign creditors," Zlatkis said. "Foreigners think that it may make sense to put it off until after the holiday season because the market may lack liquidity earlier."

The holiday season in Russia ends after Orthodox Christmas, which falls on Jan. 7.

"All other issues have been settled with foreigners, and we have not heard any other requests from them," Zlatkis said.

Foreign observers, however, are disinclined to believe the possible secondary trading postponement has anything to do with Christmas. Tom Balestrery, director of First Mercantile Capital, which counts several foreign T-bill investors among its clients, said the government had other reasons to stall.

"There is still no consensus among the creditors," Balestrery said. "Several banks have spoken on behalf of all creditors, but their shareholders may have different objectives, and some are still trying to negotiate better terms. I think the government is playing for time to build up its reserves."

Representatives of major creditor banks on Tuesday declined to say whether negotiations on the restructuring deal were still under way.

Under the restructuring scheme agreed with major foreign creditors, 70 percent of the defaulted GKO and OFZ bonds will be converted to low-coupon, long-term bonds. A secondary market might provide an opportunity for investors to get cash for these securities rather than wait up to five years for redemption.

A market in the new bonds might also attract some domestic investment, since Russian banks have been desperate to spend their burgeoning ruble reserves.

Ten percent of the defaulted debts is to be paid out in cash and the remaining 20 percent will be returned in couponless bonds that can be used to pay taxes to the Russian government or swapped for Russian equities. These securities are also supposed to be traded on the secondary market.