Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Russian Investors Tie T-Bill Deal to West's




Russian investors in the nation's frozen domestic debt said Monday the restructuring deal they had struck with the government will not come into effect until foreign investors have a deal, too.


The Russian investors said that if the government drags its feet in talks with foreigners, they will pin their hopes on the legal action they undertook against the Finance Ministry immediately after the Aug. 17 debt default.


Pavel Teplukhin, president of the Troika Dialog mutual fund managing company, said in an interview that the government can negotiate restructuring terms separately with different groups of investors, but in the interest of fairness it must make an offer to Russian and foreign bondholders simultaneously.


Deputy Finance Minister Mikhail Kasyanov said Monday that talks with foreign bondholders will continue in Moscow later this week. Many of the foreigners are not happy with the terms that a group of six big Western banks negotiated with the Finance Ministry in London last month. The rules for repatriating proceeds from the restructuring, announced by the Central Bank on Friday, are especially irksome to investors.


Teplukhin, who recently spent some time in London talking to the Western creditors, said many of them objected to Russia's latest attempts to give favorable repatriation terms to foreign banks willing to go easy on Russian banks' forward contract debts.


Foreign banks signed about $6 billion worth of currency forward contracts with Russian banks to hedge their treasury bill investments against ruble devaluation. The Central Bank wants foreigners to settle the contracts at a low exchange rate in exchange for the right to repatriate part of the T-bill restructuring proceeds.


Teplukhin said his feeling after talking to Western bankers was that banks accounting for about half the total foreign T-bill holdings were willing to accept the deal proposed by the Russian government. However, others were intent on holding further talks.


For Russian investors, exporting the proceeds from restructuring is not an issue. In other respects, Russian banks which held the majority of T-bills are supposed to get the same deal that foreigners negotiated in London. They have been offered 10 percent of their investment in cash, 20 percent in bonds that can be exchanged for Russian equities or used to pay taxes, and the rest in long-term, low-coupon bonds.


But the Russian investors, who call themselves the Moscow Club, said Monday that a separate scheme provides for special terms for those investors that were obliged by the government to hold its bonds, such as insurance companies, pension funds, mutual investment funds and all other bondholders except banks and state bodies.


Under the special scheme, the creditors will be given 30 percent of their T-bill holdings in cash, 30 percent in tax bonds and the rest in long-term bonds.


According to the Moscow Club, investors to whom this scheme applies are many, but they only account for 6 percent of the 200 billion rubles ($11.2 billion) worth of frozen T-bills held by private investors as of Aug. 17.


There is also a small group of investors deemed socially important, including health insurance companies, mass media, housing cooperatives and charities. This group can chose the second scheme or having all of their paper redeemed as it matures.


Moscow Club representatives said the Finance Ministry had fully endorsed these restructuring terms. The Finance Ministry confirmed this last week.


The only problem is that the deal cannot be signed until talks with foreign investors are over. But Moscow Club members say a sword of Damocles is hanging over the government to finish the negotiations quickly.


On Dec. 15, the Supreme Court is scheduled to hear a case filed by Russian investors against the Finance Ministry in September. Alexander Auzan, head of the consumer rights group KONFOP, said that by announcing a forced restructuring of its bonds on Aug. 25, the state violated the civil code on six counts.