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. Last Updated: 07/27/2016

Russia Prepares Eurobond Issue

bloombergSergei Storchak
GLENEAGLES, Scotland -- Russia may set a deadline for exchanging as much as $2.5 billion of overdue Soviet debt for new eurobonds at a discount, as the country seeks to cut interest payments and lower debts to keep the economy growing.

Sergei Storchak, head of the Finance Ministry's debt department, said the government wanted to issue between $300 million and $500 million in eurobonds for the debt swap as soon as October. In 2002, Russia swapped about $1.3 billion in eurobonds maturing between 2010 and 2030 for part of the debt.

"Otherwise, it will take years and years to settle the debt because it's very old," Storchak said in an interview on Friday in Gleneagles, Scotland, where leaders of the Group of Eight industrialized nations were meeting. He did not say what maturities the bonds would have or when the government expected to pass the laws needed for the swap.

Storchak dismissed as "absolutely wrong" investors' estimates that the overdue debt might total as much as $6 billion.

"We are glad of the signs of progress in moving ahead with the debt exchange," said Ben Heller, an emerging market fixed-income manager at HBK Investment in New York. "The market can very easily absorb the new eurobonds issued as part of this exchange.

"With respect to the rest of the claims, reconciling them is a complicated business, and the authorities do need time for that," Heller said. "That's why we think they should be dealt with in a third and final wave at a later date."

Russia, the world's biggest oil producer and its biggest oil supplier behind Saudi Arabia, is working off its debts while it is flush with cash because of high oil prices. It agreed in May to repay early 38 percent of its $40 billion debt to the Paris Club. The payment is scheduled to be made by Aug. 20.

The government's direct foreign debt decreased to $108.3 billion as of April 1 from $114.4 billion on Jan. 1 this year and $143.4 billion on Jan. 1, 2001, according to the Finance Ministry.

"After that, we will analyze the outcome of the deal and if the government approves a decision to repay early more of this debt, we will" resume talks with Paris Club creditors later this year, Storchak said. "We would repay" more of the debt owed to the Paris Club "at nominal value only; there cannot be any talk about paying us any premium" to creditors for the early payment.

Some creditors, such as Switzerland, have demanded a premium for the early repayment, he said.

The nation's stabilization fund, created to store windfall oil revenue, is expected to increase to 1 trillion rubles by the end of the year, from about 640 billion rubles now, Storchak said. Russia is using the money on early debt repayment.

Urals crude, Russia's major export blend of oil, closed at $55.28 per barrel on July 6, compared with $34.11 a year ago, and $17.95 on July 6, 1999, according to Bloomberg data.