08/26/1998 07:23:45 Russia debt swap leaves many questions unanswered
By Apu Sikri NEW YORK, Aug 25 (Reuters) - The Russian
government's package for restructuring its domestic debt left
many key questions unanswered, including whether the bonds
would be converted from face value and exactly what exchange
rate would be used, bankers said on Tuesday.
Moscow announced a restructuring package for close to 40
billion in rouble-denominated domestic debt late Tuesday.
Analysts in the United States said no clarifications of the
terms were immediately available.
The details are critical for investors to figure out what
the exact returns on the notes would be. Analysts said their
rough estimates put the recovery at about 30 cents on the
dollar. But the actual amount could vary widely depending on
details that have yet to be explained.
Russia announced late Tuesday that all Russian Treasury
bills and notes maturing before December 1999 will be turned
into rouble-denominated bonds with maturities ranging from
three years to five years.
The bonds will pay 30 percent for the first three years, 25
percent in the fourth year and 20 percent in the fifth year.
Investors converting into rouble bonds will receive five
percent of the nominal value of their holdings in cash.
Investors who receive dollar bonds will be able to convert
only 20 percent of the rouble value of their debt into dollars.
The nominal value of the rouble debt will be calculated from
the paper's average price in roubles on August 14, 198, when
the government announced a debt moratorium.
GKOs were trading at 51 percent of face value on Aug. 14,
according to traders.
Following are some of the key questions that investors and
analysts said were not adequately addressed.
* What would be the conversion ratio between the old bonds
and the new securities. Would it be 95 percent of face value of
the old bonds or 95 percent of a nominal value with a discount
built in? * What is the exchange rate to be used. The
government said the currency conversion would be based on the
mean official exchange rate between August 17 and August 26.
Would this be the average rate of the closing on the Moscow
Interbank Currency Exchange (MICEX)? * What exactly is the
20 percent limit on the conversion to the dollar bonds? Does
it mean investors will be able to recover only 20 percent of
the nominal face value of GKOs and OFZs as of August 14, 1998
and would simply write off the other 80 percent? Or does it
mean investors can convert only 20 percent of their holdings
into dollars and the other 80 percent into rouble-denominated
bonds? Investors pointed out that if they can only get 20
percent of the nominal value of the GKOs as of Aug. 14, then
the recovery on the bonds works out to about five to six cents
on the dollar, which essentially rules out option to convert
* There are questions about the limited tradability of the
new rouble-denominated bonds in the secondary market. Does that
mean there will be no secondary market until maturity or will
the Ministry of Finance allow limited trading in these
instruments? "The concerns about the rouble instruments are
varied," said Daniel McGovern, managing director at Merill
Lynch International. Moreover, "the limited tradeability is a
big negative for investors," said Paul Dickson, sovereign
analyst at Lehman Brothers Inc.
-- (Apu Sikri; 212 859-1562; firstname.lastname@example.org ))