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. Last Updated: 07/27/2016

Minister Declares Debt Swap A Success




Russia claimed victory in its attempt to restructure billions of dollars' worth of frozen ruble debt Friday, saying the vast majority of its foreign creditors had agreed to its terms f and the rest would find their hopes of negotiating alternative deals to be in vain.


Finance Minister Mikhail Zadornov said at a news conference Friday that 88.5 percent of foreign holders of GKO treasury bills and OFZ bonds had exchanged the frozen debt for new paper.


As Zadornov thanked foreign investors for their understanding of Russia's precarious financial situation, even the position of the most staunch Western opponent of the deal, Credit Suisse First Boston, appeared to have weakened.


CSFB has consistently and loudly rejected the Russian-offered debt swap. But in a press release Thursday, the bank said it had accepted the deal on behalf of its clients f even as it was continuing to hold out for a better deal in exchange for its own proprietary positions.


Zadornov said Friday that meant CSFB had submitted 18 billion rubles in bonds for the swap, only holding back 5 billion rubles of its own.


CSFB's press release said negotiations with the Russian government over the creation of an alternative debt swap mechanism f the Nikitsky Fund, designed to invest in Russian infrastructure projects f were "at an advanced stage."


But Zadornov's rejection of individual alternatives to the debt swap appeared to squash any chance CSFB may have of bringing Russia back to the negotiating table, analysts said Friday.


Friday's announcement could mark the official end of months of wrangling between Western creditors and the Russian government over restructuring terms for ruble debt frozen in the wake of last August's financial meltdown.


Foreign creditors have slammed the deal as whittling away their original investment, which was worth $40 billion in August, to a fraction of its former value.


But Russia's take-it-or-leave-it tactics left the majority of investors with little choice but to accept Russia's swap. Deutsche Bank, Chase Manhattan and Creditanstalt were the first to break ranks last month from a 19-strong group of Western investors that had entered the negotiations as a united front.


Zadornov said the only holdouts on the deal now are "a few hundred minor GKO holders."


But another major holder of the frozen ruble debt, Nomura Capital Management, on Friday also said it would continue to disdain the deal.


"We are rejecting the scheme because it was a unilaterally imposed and confiscatory restructuring. It should have been a product of good-faith negotiations, but it clearly was not," said Dan Jackson, managing director of Nomura Capital Management.


Jackson said Russia's coercive methods over the debt swap could set an "uncooperative tone" for negotiations over rescheduling billions of dollars worth of Soviet-era debt between Russia and the London Club of commercial creditors.


Zadornov said 93 percent of frozen GKOs had been submitted for restructuring, which accounted for 174 billion rubles of the total of 188 billion rubles of frozen debt.