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. Last Updated: 07/27/2016

Creditors May Grant Russia Payment Delay




Russia may get a three- to six-month delay on a forthcoming debt payment to the London Club of creditors if restructuring talks are not over by then, Vneshekonombank's head was quoted as saying Monday.


When asked what the government would do if the negotiations were not completed by Dec. 2, when Russia is to make its next interest payment, Andrei Kostin told Vremya MN daily: "Then a decision on giving a three- or six-month deferral on the payment and on continuing the talks may be taken."


Russia and the London Club of private creditors are discussing restructuring $32 billion of debt the government inherited from the Soviet Union.


Russia has missed $3.5 billion in payments to the club since a 1998 ruble devaluation made servicing the debt unbearable.


The government is due to pay over $1 billion on Dec. 2, said Alexander Shokhin, a former Russian debt negotiator.


However, Kostin, speaking after the latest round of talks, in which he participated, hoped negotiations were nearly over.


"I think we have laid good grounds for reaching an agreement by the end of the year during one or two rounds," he said.


The government wants a 40 percent write-off of the debt in exchange for it taking over the debt, securitized into Principal Notes, or PRINs, and Interest Arrears Notes, or IANs, from Vneshekonombank.


It also wants a longer payment schedule and longer grace period than under the original 1997 restructuring deal.


Analysts have said Russia can count on a 20- to 30-year restructure and a five- to eight-year grace period, while 35 percent debt relief was possible. The original contract provided for a 25-year principal restructure and 20-year interest restructure with seven years' grace.


Kostin said that after an agreement with the club had been hammered out, Russia would be able to re-enter international markets as a borrower to refinance its debts. "I think this can realistically be done as early as in 2001," he said.


Kostin also said that if Russia issued new Eurobonds to replace PRINs and IANs, prices of the country's already-traded Eurobonds would rise as Russia's credit ratings would improve.


Russia's ratings plunged after the August 1998 economic crisis, with Standard & Poor's assigning Russia a selective default and a CCC rating for Eurobonds.


Kostin said Russia might follow the London Club pattern in negotiations with the Paris Club of country lenders which are due to resume in the middle of next year.


"Negotiations with the Paris Club will be very difficult," he said. "I do not rule out Russia raising the problem of debt relief. But it is so far difficult to say in which form."