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. Last Updated: 07/27/2016

Menatep Defaults Under Moratorium




Bank Menatep has become the first Russian bank to default on a syndicated loan since the Central Bank imposed a 90-day moratorium on repayment of foreign debts.


By the time the moratorium ends Nov. 17, a number of banks are expected to also go into default on at least $250 million in loans from foreign banks.


Bank Menatep on Monday missed payments on the principal of an $80 million loan.


On Friday, the bank announced it was pulling out of a rescue plan for the troubled Tokobank because it had refused Menatep's offer to buy a controlling stake, Reuters reported.


Officials at Menatep, one of 12 banks planning to pool resources to keep each other afloat, said they were ready to pay, but the moratorium stopped the settlement. "We were ready to pay our debt," said Nikolai Kuznetsov, a Menatep vice president. "They called the moratorium literally the day before the debt came due."


He said the bank had paid the interest that was due.


Russia's chief debt negotiator Anatoly Chubais said Friday that some banks should be allowed to fail.


"We need to have a [bank] restructuring," he said in a statement reported by Reuters. "Banks that are insolvent should become bankrupt, and this should be done even under the financial situation we have now."


Analysts said the high percentage of loans coming due in the next three months was a likely reason for the timing of the government's moratorium.


Already last week, two banks, Inkombank and SBS-Agro reportedly received Lombard credits of $100 million each from the Central Bank in order to avoid default on loans. Bank Imperial, reportedly turned down by the Central Bank for a similar bailout, defaulted on a $50 million loan due Aug. 14.


If the government had not imposed the moratorium, analysts said, most of the banks would have been forced to default. The syndicates are scrambling for guarantees that they will see their money again, they said.


"Basically the syndicates are just concerned about getting their money back," said Tessa Walsh, London bureau chief of Loan Pricing Corp., a consulting group that monitors loans. "They're not particularly bothered about late payments, just as long as they get paid."


A Cyprus-based representative from the London Forfaiting Co., which arranged several loans including Menatep's, said his company was discussing the situation with the other syndicate banks and borrowing banks to "try to find some way out of this."


"I don't think the Russian government has a clear idea of what it wants to accomplish," said the representative, who did not wish to be identified. "Once we know what this is, then we will be able to proceed."


Analysts were divided over whether the moratorium was necessary.


Western investment banks, most prominently CS First Boston, have harshly condemned the move, saying it would lead to the destruction of the creditworthiness of all banks.


"I understand what the [Central Bank's] logic was, but I still think it was a silly move," said Margot Jacobs, a banking analyst at United Financial Group. "Now they've just lumped all of them together, even the ones that were creditworthy."


But Michael Flood, banking partner at Coopers & Lybrand, said the move was necessary, if regrettable. "Given that one of the jobs of the Central Bank is to help restore confidence in the banking system as a whole, forcing a distinction between those banks that are able to pay as opposed to those that are not would not be conducive to this," he said.