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. Last Updated: 07/27/2016

State to Pay Interest on Soviet Debt

Russia's government, which has already defaulted on some of its debts, on Friday surprised holders of MinFins by promising to pay interest on all of its tranches May 14.

But the Finance Ministry said in a statement that it would hold talks on the MinFin3 debt tranche, for which principal and interest was due, over six months to Nov. 14. It requested creditors not to ask for payment of the principal during this period.

It said it would pay 3 percent annual interest on MinFin3 during the talks.

"It was a positive surprise - no one expected to get any money in May," said one analyst at Paribas.

The government was due to pay a total $1.6 billion in maturing MinFin3 and interest on the other four tranches on May 14 but the cash-strapped country has already had problems meeting debt repayments.

It has pledged to honor debt taken by the Russian Federation since 1992 but wants to restructure Soviet-era debt with the Paris Club of government-lenders and the London Club of commercial creditors. It already has $2 billion in overdue payments to these groups.

The ministry said that if creditors used cross-default conditions to demand early repayment of the remaining tranches, MinFin4 to MinFin7, then these securities would also be the subject of restructure talks.

The Finance Ministry said as the principal payment on these tranches was not due until 2003, it currently saw no need to review their status, meaning it would not hold restructure talks on them now.

There is $11 billion of the MinFin debt outstanding at nominal value, although market prices are quoted below default levels, at just a few cents on the dollar.

The ministry said that the MinFin3 debt would be treated the same way as other debt of the former Soviet Union, although tranches six and seven were considered as Russian debt.