Summit News

Bankers' trust in Russia sapped by two debt cases

MOSCOW (Reuters) - Russia’s banking sector offers much better margins than developed countries, but two debt cases, involving a state agency and oligarch Oleg Deripaska, have sapped confidence in Russia, a banker said on Tuesday.

UniCredit Russia chief executive Mikhail Alexeyev talks to Reuters in Moscow September 15, 2009. REUTERS/Sergei Karpukhin

Mikhail Alexeyev, the local head of Italy's UniCredit CRDI.MI, said some lenders are now very reserved about working in Russia following marathon talks with Deripaska's aluminum giant RUSAL to restructure $7.3 billion of debt.

And the failure of the federal government to take responsibility for redeeming a quasi-sovereign bond, on which a Moscow region agency defaulted last year, is only adding to investors’ worries.

“We take it extremely negatively. One of the largest regions has failed to repay its debt... I think it brings shame on the whole family,” said Alexeyev.

“It’s not crucial for us from the point of view of business, but this is a question of principle.... We’re not talking here about some corporate client,” he added.

Russia’s regional debt market ground to a standstill last year after the onset of the financial crisis and when a string of firms affiliated with the Moscow region, the most heavily indebted Russian province, defaulted.

On the corporate front, RUSAL, the world’s largest aluminum maker, has broadly agreed on restructuring terms with as many as 70 banks, promising to repay $5 billion by the end of 2013 and to refinance its remaining debt for an additional three years.

Foreign banks view a successful conclusion to talks as a gauge of Russia’s ability to manage $475 billion in foreign debt accrued before markets crashed in the second half of 2008.

Talks have been going on since early 2009 and the deadline is largely expected to be extended for a few more months.

“The situation could have been solved in a much shorter period of time with a more flexible and constructive approach. In the end it was resolved, and thank God!,” said Alexeyev.

He said some Russian borrowers in restructuring talks were ready for a constructive dialogue, while some, including Rusal were less accommodating.

“That’s the case when the borrower tried to push through his position and dictate his conditions to the very last moment,” he said.

“There are those who will not want to carry on (in Russia),” he said.

He said, however, that UniCredit would try to increase lending this year and boost its risk exposure to Russia.

UC RUSAL, with debts totaling $16.8 billion, suffered when aluminum more than halved in value between July’s record high of $3,380 a tonne and the end of 2008.

The company had borrowed heavily to finance acquisitions abroad and build several new smelters in its Siberian heartland.

Writing by Dmitry Zhdannikov; editing by Simon Jessop