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. Last Updated: 07/27/2016

3rd Western Bank Accepts T-Bill Plan




The decision by Credit Lyonnais to accept Russia's restructuring plan for foreign holders of frozen ruble-denominated treasury bills makes it likely that more Western banks will sign up to the Russian government's offer.


Friday's announcement made the French financial institution the third foreign bank to break ranks from the "group of 19" foreign banks that have been struggling for over six months to strike a restructuring deal on billions of dollars worth of ruble-denominated bonds on which the Russian government defaulted back in August.


With Credit Lyonnais joining two other members of the contact group of six banks in caving in, most analysts believe other banks will follow this week.


Reports are already filtering out of London that three more banks are on the verge of expressing agreement. An official at Credit Suisse First Boston said the bank will meet with its shareholders this week to determine whether or not to accept the Russian government's offer.


Deutsche Bank, which had chaired the contact group comprising six of the 19 foreign banks, and fellow contact group member Chase Manhattan, announced last month they accepted the terms being offered by the Finance Ministry, the government's side in the talks.


It appears that the seeds of dissension have been sowed, and foreign bankers, together with their clients and shareholders, are in the process of some deep "soul-searching." While the tide appears to have turned in Russia's favor, some banks may still be considering a continuation of the fight f advising their clients that they have the option of suing.


On the table are some $15 billion in assets f GKOs, OFZs, and ruble forward contracts. Under the state plan, foreign creditors will receive 10 percent in cash, 20 percent in noncoupon bonds, and 70 percent in four- to five-year paper with a gradually decreasing coupon.


The split does not come as a major surprise. Analysts said last September f when the debt restructuring talks had just began f that a rift among bondholders was inevitable given that the level of exposure to defaulted Russian debt differed from creditor to creditor.


Keeping such disparate interests together is "like trying to herd ducks," said Eric Kraus, head of fixed-income research at Dresdner Kleinwort Benson, in a telephone interview Monday.


Besides, each bank has its own shareholders it must report to, and as negotiations with the Finance Ministry dragged on, there was undoubtedly a growing number of voices eager to strike the best deal possible and close this chapter in international finance.


The fault line in the creditors group sits on the locations of each bank's operations. Those banks that conduct business in Russia f such as Credit Lyonnais f are keen to maintain good relations with the government and will sign the agreement, while those that operated from abroad have less to lose in Russia, and will therefore put up a fight.


It is still unclear when a final restructuring agreement will be sealed. The technical deadline passed on March 5, with all paperwork to be submitted by March 15. However, the government is considering extending the deadline for one more month, although no official announcement has yet been made.


Regardless when the end comes, the entire GKO restructuring ordeal is bound to leave a bad taste in many an investors' mouth. As Kraus remarked in a recent report: "The GKO negotiations are a text-book case of how not to run a negotiation. Insult has been added to injury, and simple repudiation of debt would have gone over no worse."