• ACI Russia

08/14/1998 18:46:14 Emerging mkt players anticipate G7 move on Russia

By Apu Sikri

NEW YORK, Aug 14 (Reuters) - Emerging market debt prices

were flat to slightly lower late Friday with Russia continuing

to dominate market attention.

The question that loomed large over the market was whether

the Group of Seven nations will work out some sort of

multilateral package for Russia to finance the outstanding stock

of GKOs.

Investors warned that current price levels on Russia's

dollar bonds are reflecting an anticipation of some such


If there is no such package, "the market is going to be very

disappointed from these levels and will trade back to recent

lows," said Michael Casey, portfolio manager at Federated


"The real big question is as to what extent another package

is going to finance every investor that wants to get out," said

Emilio Lamar at Columbus Advisors. "Or (will it be used to) turn

around the country," he said.

The dilemma now facing Russia and its G7 partners is whether

to dish out funds to pay out GKO holders or to forcibly

restructure that debt - an action that could further alienate

international investors.

Furthermore, with an increasing erosion of confidence in the

rouble, the central bank is having to spend additional amounts

to defend the currency, analysts said. Already, Russian central

bank foreign reserves are down to about $17 billion as of last

Friday, analysts said. This week alone, the central bank would

have spent anywhere between $500 million to $1 billion defending

the currency, these analysts said.

With that kind of money being spent to support the rouble,

Russia likely won't have the money to pay out on GKOs, analysts

said. Moreover, there are about $1 billion in coupon payments on

the dollar bonds due around December.

Traders said few people want to hold short positions on

Russian bonds or other emerging market debt into the weekend,

given that there is the possibility on some sort of statement

from the G7 countries. But next week, if no resolution is

reached among the major powers on how to deal with Russia's

financial crisis, emerging market debt could slide back to the

lows of earlier this week, traders said. This would be about ten

points lower on Russia bonds and anywhere from three to seven

points lower on the securities.

The emerging debt market "is in terrible shape," said Hari

Hariharan, portfolio manager at Santander New World Investments.

People are "clutching to any piece of news" and prices are being

driven "by the muscle of the marginal player," he said.

In the market, Russia's benchmark PRINs were trading late

Friday at 31-3/8 and Brazil's "C" bonds <BRAZILC=RR> were

dealing at 69-3/4.

(( --N.A. Treasury Desk; 212 859-1562;

apu.sikri@reuters.com ))

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