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. Last Updated: 07/27/2016

Merrill Rejects Seat In Russia Debt Club

NEW YORK -- Merrill Lynch and Co. declined to take a seat on the London Club of bank creditors involved in Russia's Soviet debt restructuring talks, a Merrill official said.

By snubbing the London Club, the top U.S. securities firm appeared to lend support to a recently formed association of investors who are no longer satisfied with the way the London Club has handled the restructuring of some $26 billion in Soviet-era debt.

"Most of our clients who hold Russian debt did not want us to be in the London Club and we thought there was too much of a conflict of interest," Juan del Azar, managing director for emerging markets trading at Merrill Lynch, said Wednesday.

"We do not feel comfortable trading the debt while sitting on a steering committee negotiating the terms of the debt at the same time," he said.

Russian Finance Minister Mikhail Kasyanov was scheduled to meet in New York on Thursday with the new investor group, called Russian London Club Portfolio Managers Inc., which was formed last month and is pressing Russia to make $855 million in Soviet debt payments it missed on June 2.

Kasyanov said before the talks Thursday that he hoped to dissuade the investors from taking legal action that would force Russia to make the payments on the Soviet debt known as interest arrears notes, or IANs, and principal loans, or PRINs.

"There is a negative mood here, that is why I need to meet them [creditors] myself to calm them down on behalf of the government," Kasyanov said.

The new association believes creditors in the London Club discussions are represented by banks that may be too willing to let Russia rollover Soviet-era debt in order to protect future underwriting deals.

Del Azar said he agreed with the association's goal of negotiating concessions from Russia.

"It's a very positive initiative to form an association that represents the investment community, rather than the banking community," del Azar said. "Most of the composition of the London Club represents people who made loans in the 1980s, not investors in the 1990s."

The investors' association has retained the global law firm of Shearman & Sterling, which has been involved in numerous sovereign debt restructurings over the last 20 years, to represent it in Thursday's talks, said association chairman Marc Helie.

Helie is a managing director at Gramercy Advisors, a New York money management firm with PRIN and IAN holdings. It had been widely reported that Merrill was on the London Club committee, which is headed by Deutsche Bank AG. Deutsche Bank declined comment Wednesday on the investors association or on Kasyanov's trip to talk to them.

Cash-strapped Russia desperately needs an easing of its foreign debt burden. But a long-awaited deal with the International Monetary Fund is seen as a necessary step before Russia can restructure its London Club debt.

Del Azar said Merrill was invited onto the London Club committee several months ago. In addition to the conflict of interest, del Azar said Merrill declined the invitation because the bank does not hold enough Russian debt to warrant a place on the committee.