08/19/1998 17:35:59 Global pressure forced Russian rethink-analysts
By Catherine Evans
LONDON, Aug 19 (Reuters) - Russia's call for help in
overhauling an emergency restructuring of $40 billion of rouble
debt followed warnings that the original plan might permanently
alienate international lenders, analysts said on Wednesday.
They said foreign investors' outrage at suggestions that
Russia would pay less for their defaulted debt than that held by
domestic investors prompted protests from overseas governments
and multilateral lenders.
"I think a certain amount of political pressure was put on
Russia to change its plans," said the head of emerging markets
debt trading at a major U.S. bank in London.
"I think they were warned that discriminating against
foreign investors like that would shut the door on lending from
foreign institutions and governments for a very long time."
Other analysts said the International Monetary Fund, which
agreed a $22.5 billion bail-out package with Russia in July,
might also have found the original plan hard to swallow.
"It's one thing to default because you're not solvent, quite
another to discriminate against foreign investors. I would be
surprised if this was acceptable to the IMF, and if they want
IMF money, they have to play ball," said David Riley, sovereign
analyst at Fitch-IBCA in London.
Deputy Prime Minister Boris Fyodorov said on Wednesday that
Russia had delayed detailing the debt restructuring until
Monday, pending discussion with newly-appointed international
advisers Deutsche Bank and JP Morgan.
Terms for the deal, which will cover GKO and OFZ bonds
maturing before December 1999, had been due for release on
Fyodorov also offered investors an assurance that Russia
intended to repay maturing debt with new securities of the same
Credit Suisse First Boston had suggested in a statement on
Tuesday that Russia would only pay domestic investors in full
for their bonds, offering foreign investors no more than the
bonds' current market value.
This year's collapse in Russian securities prices and
Monday's effective devaluation of the rouble mean such a move
would force foreign accounts to realise massive losses.
CSFB warned that discriminating against foreign investors
would "permanently damange private financing of Russian reforms
and significantly destabilise other emerging markets".
Russia's reliance on international investors to finance its
budget deficit has increased this year, as domestic yields have
exploded to levels well over 100 percent.
Last month, it attempted to circumvent its short-term debt
crisis by undertaking a voluntary exchange of $4.9 billion of
GKOs for seven and 20-year dollar Eurobonds.
Russia also used proceeds from two Eurobonds sold in June to
pay down maturing GKOs.
But panic about the country's fiscal position meant the
$10.15 billion of new dollar paper Russia issued between June
and July was not solidly placed, and its dollar bonds now
languish at spreads of between 2,500 and 5,000 basis points over
U.S. Treasury notes.
Analysts said on Wednesday that although Russia appears to
have accepted the principle of par redemption for all rouble
debt holders, the form the debt restructuring will take remains
They said it was not even clear if Russia will seek to have
some of the debt written off -- something it would effectively
have achieved by taking out foreign bondholders at market value.
"I think there will be a write-off, albeit a smaller one
than was feared," said Richard Gray, an analyst at Bank of
America in London.
He declined to estimate how much of the debt Russia would
seek forgiveness on, but other analysts said the 35 percent
which is standard in Brady-style debt restructurings was a
Analysts were also split over what proportion, if any, of
the new debt, Russia would seek to denominate in dollars.