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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

Wednesday.

Fyodorov also offered investors an assurance that Russia

intended to repay maturing debt with new securities of the same

face value.

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

a mystery.

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

likely benchmark.

Analysts were also split over what proportion, if any, of

the new debt, Russia would seek to denominate in dollars.

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