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. Last Updated: 07/27/2016

Creditors Demand Eurobond for Debt




London Club creditors of Russia believe the market will only accept a new restructuring of $32 billion of Soviet-era debt that includes a sovereign Eurobond, commercial creditors and the Finance Ministry said in a joint statement after talks Thursday.


The statement said the Russian delegation, which included heads of the ministry and obligor Vneshekonombank, had made a proposal to restructure all London Club debt, which included significant debt relief, and that new talks could take place as early as late next week.


In the statement, the club committee said it believed that for any comprehensive restructuring providing debt relief to take place the market would require that the new obligations take the form of Russian Federation Eurobonds.


Currently, PRINs and IANs, the securitized debt to the London Club, is regarded by Russia as Soviet-era debt, which the government wants to restructure.


The government promises to service post-Soviet Eurobonds.


Investors are also unhappy that Vneshekonombank has few assets abroad which could be sued in case of a default and so want the government to officially assume the obligation.


Finance Minister Mikhail Kasyanov said Russia was considering the proposals to exchange the debt into Eurobonds. In return, Russia has asked the London Club of commercial bankers for debt forgiveness and other measures to reduce the stock of debt.


"Our proposal suggests a reduction of overall stock," he said. "We've had difficult discussions ... but the major target Russia is looking for is sustainable debt servicing.


"There are very strong demands from the creditor side. ... I won't say we are willing to consider it, but we have to do this," he said.


Kasyanov was to return to Moscow although further consultations between the banks and more junior Russian negotiators will continue Friday at the Clifford Chance law firm.


PRIN debt prices rose a 1/2 point to stand at 10 bid immediately after the interview was broadcast, but then fell back to 9-7/8. IANs were up 1/8 at 12-1/8. Other Russian debt stood weaker.


Analysts say Russia is asking for as much as a 60 percent debt writeoff without offering an increase in debt seniority, and say that in this case Russia's hopes to complete the talks by the year's end are overly optimistic.


But the government, which views the talks as part of broader efforts to soften its crushing debt burden, faces a tough haul as any final agreement requires 95 percent approval from bondholders.


Meanwhile, Kasyanov said Russia would pay the Paris Club of creditor countries $170 million by the end of November under an agreement signed in early August to restructure $8 billion in payments due in 1999 and 2000, Interfax reported.


The Soviet-era debt to 18 creditor countries in the club is $38.7 billion and Russia must pay it $620 million in 1999 and 2000, Interfax said.