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. Last Updated: 07/27/2016

Russia Starts New T-Bill Talks With Irate West

Government officials Thursday started new talks with foreign creditors on restructuring Russia's domestic debt after foreign bankers protested what they see as Russia's attempts to unilaterally impose terms.

Foreign banks set out an eight-point agenda for talks with Deputy Finance Minister Mikhail Kasyanov and deputy Central Bank chief Andrei Kozlov. The first item on the agenda, Reuters reported, was that "the [foreign banks] believe the economic terms have been set by the Russian government unilaterally."

Besides, problems remained on the Russian side despite Wednesday's announcement of supposedly final exchange terms and deadlines by the Finance Ministry and the Central Bank. Even if bondholders had been prepared to accept the state's plan and start trading in their T-bills, or GKOs, the Central Bank could not have obliged them.

Finance Minister Mikhail Zadornov said in an interview with The Financial Times, published Thursday, that "just the technical issues" remained to be resolved with foreign creditors caught holding state securities when Russia declared an effective default Aug. 17.

But the banks' agenda for the talks with Kasyanov and Kozlov in London suggested otherwise. Above all, the 19 foreign banks want from Russia a full, detailed term sheet, including information on currency exchange operations during repatriation of restructuring proceeds and data on investment opportunities following from the deal.

No such term sheet has been presented yet, despite the government's announcement Wednesday.

Then, the banks need to evaluate the terms, and once they are ready, a meeting with Kasyanov and Kozlov should be held before any final deal is announced.

The foreign creditors also requested information on the fiscal status of restructured bonds.

Zadornov assured investors in his Financial Times interview that Russia was willing to work out all contentious issues. "We will continue discussions and are prepared to modify our position," he said. "I think it is in the interests of both sides to reach an agreement."

But some analysts doubt that the government is going to give any serious consideration to investors' demands.

MFK Renaissance wrote in an analytical report Thursday that the Finance Ministry is now more concerned with getting the 1999 budget through the parliament and with restructuring Russia's foreign debt than with the T-bill issue.

"The concerns of foreign holders of GKOs have now been placed a long way down the list of priorities," the report said. "The real purpose of [the government's announcement on restructuring terms] was not to inform creditors - it was meant to put an official seal to a much disputed, confiscatory restructuring which is going ahead irrespective of foreign banks' protests."

In an indication of how ill-prepared the government is to deal with the T-bill restructuring even on its own terms, a Central Bank representative was quoted Thursday by Interfax as saying that frozen T-bills could not yet be exchanged for new securities. Zadornov said Wednesday that the exchange was already possible.

The Central Bank official, who spoke on condition of anonymity, said more clarification was needed on technicalities of the exchange.

The total GKO debt stands at 240 billion rubles - worth $40 billion before the Aug. 17 ruble devaluation, but only $12 billion now - of which foreigners are estimated to hold 30 percent. The basic deal offered by the government envisions repayment of 10 percent of the investments in cash, 20 percent in special investment securities and the rest in four- to five-year low-coupon bonds.