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. Last Updated: 07/27/2016

High Hopes for Debt Restructure as Talks Halted




LONDON -- Western bankers adjourned debt restructuring talks with Russia on Wednesday and said a major deal that would vastly improve the country's finances could be struck by the end of the year- but only if final offers were good enough.


The day of talks, aimed at finding a way to reschedule about $32 billion of Soviet-era debt owed to the London Club of commercial creditors, follows hot on the heels of a weekend agreement to roll over $8 billion of Paris Club sovereign debt and a new International Monetary Fund loan signed last week.


No concrete restructuring proposals were discussed in the Frankfurt meetings, led by London Club head Deutsche Bank.


Finance Minister Mikhail Kasyanov said Moscow's final proposals might include partial debt write-offs, lower interest payments and a long grace period.


"We have a timetable. The next meeting is in September. The process has just started," Kasyanov said.


Russia has long said it wants to strike a deal before Christmas, rather than wait until after a presidential poll next June, because it would ease the cash-strapped country's debt burden and enhance the government's profile during the election.


London Club officials, mindful of Russia's huge domestic-debt default last year that left creditors with heavy losses, said a permanent agreement hinged on Moscow's final offer.


Both sides appear to be working toward a more ambitious solution than the Paris Club's partial rollover until end-2000.


"The London Club is not necessarily seeking an early debt solution, but if a good deal were put on the table it might be better to go ahead than stare at the ceiling," one source present at the talks said.


Russian bond prices were largely unmoved by the inconclusive talks, although market speculation is rife that Russia may finally offer to swap the Soviet-era debt, now traded on secondary markets as PRINs and IANs, into more senior Eurobonds in return for partial debt forgiveness.


Russia has long drawn a line between post-1992 debt such as Eurobonds, which it has vowed to pay, and Soviet-era debt such as the PRINs and IANs, much of which is technically in default.


Ratings agency Standard & Poor's recognized that distinction Wednesday when it upgraded post-1992 debt one notch to CCC from CC. Russia's overall rating is still SD, or selective default.


Even if a deal is reached, the London Club must still convince bond holders, many of whom have different interests. A 98 percent approval is required.


Analysts were divided as to whether both sides could realistically reach agreement before the end of the year.


"They have to sell the deal to a lot of bondholders, and if some of them don't like it, it won't happen," BSCH fixed income analyst Barbara Peitsch said.


Market speculation is of up to a 50 percent write-off on the face value of the debt, which would then be swapped into long-dated Eurobonds with payments that rise through the years to help ease short-term payment pressure.