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. Last Updated: 07/27/2016

Russian Banks Ask for Debt Repayments in State Assets




Russian banks left dangling by the government's debt default of mid-August on Thursday followed the lead of Western creditors in asking to be repaid in state-owned assets or shares in businesses with state stakeholdings.


"The banks currently need 100 billion rubles ($5 billion) to cover their debts," said Sergei Yegorov, the president of the Association of Russian Banks. Those debts, he added, were caused by Moscow's decision to freeze reimbursements of 250 billion rubles of treasury bills, known as GKOs and OFZs, on Aug. 17.


The debt restructuring proposal that the government has been offering both Russian and foreign banks - to pay 10 percent of the debts in cash, 20 percent in investment bonds and 70 percent in new long-term, interest-bearing paper - "has bled dry the [Russian] banking system," Yegorov said.


"The state must look at paying the banks in assets or with shares that it holds in different companies," he said.


He added that the association wanted to negotiate the idea with the government, failing which "we will go to court."


Since the default, the government has paid the banks 23 billion rubles, of which half were "stabilization credits," he said.


Russian talks with foreign holders of Russian domestic debt have recently snagged on precisely this issue.


Foreigners have been offered a scheme where they could buy corporate equity on the domestic market using one-third of their cash allotment under the current restructuring package. That would amount to 3.3 percent of the banks' holdings of government treasury bills, or GKOs, on which Russia defaulted Aug. 17. In monetary terms, that would represent about $100 million.


At the moment, the investment bonds are effectively worthless for foreigners. The bonds can be used to pay either tax liabilities or to buy shares in Russian banks. But since most foreign banks have no tax liabilitie s - and many Russian banks are in poor health - the bonds hold little value.