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. Last Updated: 07/27/2016

Leningrad Wins Debt Reprieve

ST.PETERSBURG -- The Leningrad region has persuaded its creditors to reschedule a $50 million syndicated loan and delay an interest payment after the region failed on Wednesday to fulfill its obligations.

Creditors had exercised a "put" option on the loan to bring the full $50 million due Wednesday, but the region, which surrounds but does not include the city of St. Petersburg, was unable to meet the obligation.

Even after having said Wednesday that it would make the $2.35 million interest payment that was due that day, the region came out Thursday to announce it had not paid up.

Instead, it had succeeded in getting its creditors to accept a restructuring proposal that calls for the loan to be repaid in full by May 2001.

Creditors' minds were apparently eased after visiting the construction site of a new Philip Morris factory, scheduled to begin production in December.

The tour added sufficient weight to the region's claim that taxes from the plant will be used to pay off the loan, Leningrad region finance committee chairman Alexander Yakovlev said at a news conference Thursday.

"The credit will be returned from the tobacco excise tax we will receive from Philip Morris," Yakovlev said.

The region's investment laws exempt investors from paying tax until their investment is returned. The only exception is an excise tax on tobacco, Yakovlev said. Philip Morris is due to pay duties of $35 million next year and $60 million in 2001, he said.

The three-year credit was extended to the region in April 1998. Under terms of the agreement, the region would have started paying debt principal in 2001. The interest payment of $2.35 million was due Wednesday, with an additional $2.5 million due in November.

Last month, a group of 10 international banks, including WestMerchant Bank Ltd. and BankAmerica Corp., exercised a put option on the loan and asked the region to repay it two years ahead of the original maturity date.

Yakovlev said 90 percent of the syndicated credit was spent for restructuring the region's ruble-denominated debt, which violated the terms of the agreement.

The money was initially been slated to go toward infrastructure projects. The region owes a total of $69 million, as well as 658 million rubles ($2.67 million at Friday's Central Bank rate) of domestic debt.

Earlier this week, the region asked credit rating agency Fitch IBCA to withdraw its rating for the region.