Russia Banks Ask State to Lead $400 Billion Debt Talk

By Torrey Clark and Emma O’Brien

Feb. 10 (Bloomberg) -- Russian regional lenders asked the government to moderate talks initiated by foreign financial firms concerned that banks and companies will struggle to repay some of the $400 billion of debt due in the next four years.

“Several Western banks asked about holding discussions,” said Anatoly Aksakov, head of the Russian Association of Regional Banks, whose 450 members include Citigroup Inc.’s Russia unit, Alfa Bank and VTB Group. “It was their initiative to have talks on this topic to look at restructuring the debts of several companies, so that everyone can be calm.”

Speculation of European bank losses on Russian loans drove declines in the euro against the dollar and yen today. Russia has pledged more than $200 billion in emergency funding as plunging oil prices push the world’s biggest energy supplier into its worst economic crisis since Boris Yeltsin’s government defaulted on $40 billion of domestic debt in 1998.

“I think that so far it is nothing more than just an idea that this Assosiation of Russian banks came up with,” said Mikhail Galkin, head of fixed-income and credit research in Moscow at MDM Bank. “I don’t think that many borrowers themselves have intentions to restructure and are aware of this idea.”

The association wrote to the Russian government after talking with banks including HSBC Holdings Plc that had sought clarity about the capacity of some companies to meet obligations, Aksakov said. The government hadn’t responded, he said.

Smaller Banks

“It would be most effective if the debt were restructured so it’s clear to everyone, creditors and borrowers, how the debt will be paid,” Asksakov said in an earlier interview today. He said some of his comments were “misinterpreted.”

“Banks have accumulated a lot of foreign currency. There are no problems,” he said. “We’re not holding talks about restructuring.”

The central bank expanded the ruble’s trading band against a target dollar-euro basket 20 times since Nov. 11 as the currency tumbled 35 percent against the dollar since August. Russia’s foreign reserves plunged 35 percent in the past six months. The ruble strengthened today by 0.2 percent to 40.6306 against the dollar-euro basket.

The association represents smaller, regional banks, rather than the larger institutions that account for most of the debt, said MDM’s Galkin. “This is a good example of a fly growing into an elephant,” he said.

Laine Santana, a spokeswoman at HSBC in Hong Kong, was unable to comment. A Deutsche Bank AG official in Singapore declined to comment. Deutsche Bank is among the foreign banks that indicated it would welcome Russian government involvement, Nikkei reported.

Euro Slide

“I don’t see en-masse restructuring at this point,” said Eugene Belin, head of fixed-income, currencies and commodities in Moscow for Citigroup Inc. “Individual restructurings will take place but we’re not in a place now where we need to restructure systematically.”

The euro fell to $1.2865 as of 2:46 p.m. in Tokyo from $1.3003 late in New York yesterday. Europe’s single currency slipped 1 percent to 117.67 yen.

“People expect that part of these debts were from the European banking system,” said Sebastien Barbe, a strategist at Calyon in Hong Kong, the investment banking unit of France’s Credit Agricole SA. “You already have a very weak banking system in Europe. If you have these Russian issues, the next step would be questions about whether similar problems will come out of other Eastern European countries.”

Putin Funds

Russia, the world’s second-biggest oil supplier, will enter a recession and run a federal budget deficit this year for the first time in a decade, according to the government.

Prime Minister Vladimir Putin this month approved a further 400 billion rubles ($11 billion) of aid for Russian banks in the “second stage” of a bailout plan that targets consumers and companies in the “real sector” of the economy.

“No one in the Russian government has ever suggested any debt restructuring was contemplated,” said Eric Kraus, head of strategy at Otkritie Financial Company, a Moscow-based bank and brokerage. “The entire purpose of the slow, stepwise devaluation of the ruble was to allow companies to purchase sufficient foreign currency to repay debts maturing through 2010.”

-- Editor: Gavin Serkin

To contact the reporter on this story: Torrey Clark in Moscow at tclark8@bloomberg.net; and Garfield Reynolds in Sydney at greynolds1@bloomberg.net