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. Last Updated: 07/27/2016

State Starts Repaying T-Bill Investors




Russia's Finance Ministry, which defaulted on billions of dollars in domestic government debt in mid-August, began making good Wednesday on its promise to reimburse individual treasury bill holders.


State-owned Vneshtorgbank was designated to oversee payments to T-bill holders for fear the country's cash-strapped commercial banks would misuse the 130 million rubles ($8.5 million) due to investors.


"We were worried about the fate of this money," Bella Zlatkis, head of the ministry's securities and markets department, was quoted by Interfax as saying.


To claim their money, investors must open an account at Vneshtorgbank -- formerly the Soviet Union's bank of international trade. The money can be claimed as soon as the Finance Ministry deposits it into the accounts, the bank's spokeswoman said.


"A steady stream of people have been coming all morning," said Vneshtorgbank's Natalya Nikiforova. "But there aren't big lines or anything."


Faced with an overwhelming load of short-term debt, the government on Aug. 17 defaulted on about $30 billion in T-bill debt owed to Western and Russian banks by restructuring it into long-term ruble-denominated paper. Investors have put their losses at 70 percent to 90 percent of face value.


The government, however, chose to look after two other investor groups -- its own Central Bank, and the individual investors who bought into the high-yielding government-debt dream.


But despite receiving full payment on the face value of the bills, even these small investors will lose out due to the ruble's rapid devaluation.


Rather than pay off the issues as they mature, Russia waited until issues that had come due Aug. 19, Aug. 26 and Sept. 2 had all matured. Investors who should have been paid Aug. 19 have lost more than half the value of their money.


Analysts said the exemption for individuals was a purely political move on the part of the government.


"It isn't a lot of money and it's good to say, 'We nailed only the foreign banks and not the individual households,'" said Denis Rodionov, a debt analyst at Brunswick Warburg.