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. Last Updated: 07/27/2016

Leningrad Defaults on $50M Loan




The mounting pile of defaults by sub-sovereign Russian entities continued to grow Wednesday as the Leningrad region defaulted on a $50 million loan.


Further pain looks to be ahead for those who lent money to Russian entities in the booming optimism of 1997 and early 1998, as Russian oil major Tatneft had its credit rating dropped to default level over fears it would become the third Russian corporation - and the first industrial one - to default on a Eurobond.


The deputy head of the Leningrad region's finance committee, Dmitry Shiryayev, announced Wednesday that the region had, as expected, failed to pay the full $50 million that came due when lenders exercised their put option on a syndicated credit issued to the region last year.


"No, we did not repay the credit," Shiryayev was quoted as saying by Prime-Tass. The region would instead pay the $2.35 million interest payment that would otherwise have come due on the loan, he said.


The region was in restructuring talks with its creditors and hoped that the interest payment would help to sweeten the creditors' attitude during those talks, he added.


The three-year credit, led by WestMerchant Bank and Moscow Narodny Bank, was extended to the region in April 1998. Under the terms of the agreement, the region would have started paying the debt principal in 2001.


Other syndication members include Sberbank, Bank of America, Moscow International Bank, Berliner Bank, Adria Bank and Pekao Bank Tel Aviv.


This year has seen a growing number of regions and companies defaulting on loans and bonds handed out in the now seemingly distant days when every banker and their accountant wanted a slice of Russian debt.


Late last month, Moscow acknowledged that it could struggle to meet a put option being exercised on $100 million of principal still outstanding on a $200 million syndicated loan.


The next expected default is oil company Tatneft, which had its long-term foreign currency corporate credit rating downgraded on Monday by Standard & Poor's from CC to D, signaling a default.


Tatneft was due on April 29 to pay a $13.5 million coupon on its $300 million Eurobond. Even though its grace period ends May 25, the company has made no sign that it will meet its obligations.


The company has already defaulted on $700 million in short-term loans from foreign creditors.


Tatneft, boosted by a rise in world oil prices, should have no excuse for missing the Eurobond payment, analysts said.


"Given the recent rise in oil prices to $17 per barrel, it does appear that Tatneft has the hard currency reserves to make Eurobond payments," said Scott Saliterman, oil sector analyst at MFK Renaissance.


But Standard & Poor's said in a news release Tuesday that the company's close ties to the cash-strapped Tatarstan government could jeopardize its ability to pay the coupon.


If Tatneft fails to make the payment, it would be following in the path of Rossissky Kredit and Uneximbank, both of whom have already defaulted on Eurobonds.