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. Last Updated: 07/27/2016

Analysts Speculate on T-Bill Plans




The cubicles of fixed-income analysts across Moscow were awash in speculation Tuesday concerning the Central Bank's plan to convert the government's short-term domestic debt into a more manageable security.


"The big question is what kind of paper they turn the [treasury bills] into," said Denis Rodionov, an analyst with Brunswick Warburg.


Though analysts played down the value of conjecture about what form the new paper would take, most agreed it likely would be a long-term, ruble-denominated debt at an interest rate of 25 percent to 35 percent. Conversion into dollar debt would only create more problems than it solved, they said.


Rodionov said he thinks the debt will be spread out over four or five years, with a possible redemption in parts. "They might do something like give 20 percent immediately, 20 percent after a year, and so on," he said.


MFK Renaissance strategist Parvoleta Shtereva said some sort of immediate cash payment made sense because it would help to alleviate the liquidity problems facing Russian banks.


"I think [the debt] will be restructured in a way that allows for easy trading," she said.


Dan McGovern, an analyst with Merrill Lynch, joined the chorus predicting long-term ruble paper, and said repayments would likely be timed to miss the parliamentary elections next year and the presidential elections in 2000.


"The Russian government has extensive payments due on external debt in 2003 and 2005, so they have to make sure they don't create an excessive burden for themselves," he said, adding that payments would probably come due before then.


Some market rumors held that Sberbank, the largest holder of government debt, will get special treatment in any conversion plan -- a possibility McGovern said would be a natural decision.


"Just to say they get special treatment ignores both the role that they have played in creating the market" and the fact that the great majority of Russian depositors have their money in Sberbank, he said.


Shtereva said she "didn't hold out much hope" for foreigners, who probably will get the raw end of the deal.


Foreign investors have taken a lot of abuse due to the whims of the Russian government and still come back for more, she said. More importantly, "they don't vote. ... I just hope [the Central Bank doesn't] repudiate some of the debt completely."


Analysts also held mixed views of the government's bombshell announcement and subsequent failure to provide a comprehensive proposal on which market players could begin making decisions.


"My personal opinion is that if you are going to do such a thing it would have been the honorable thing to give people the details," Shtereva said. "It would have been very good to just show some regard for the markets."


But Merrill Lynch's McGovern was more sanguine in his reaction to the government's handling of the situation.


"You have to understand the decision to take this route almost certainly wasn't come up with until the weekend," he said. "So it's understandable that they need a few days to work out a plan."