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Russia: Tsarist Bondholders Tried To Stop Bond Issue

  • Stuart Parrott



London, 22 November 1996 (RFE/RL) -- Russia has issued its first international money bond since the 1917 October Revolution, defying opposition from a group holding defaulted bonds from Tsarist times.

Moscow hopes to raise $1 billion from the five-year Eurobond which marks Russia's return to the international bond markets. The issue was twice the size anticipated by financial brokers in London.

The issue went ahead yesterday despite objections from French investors holding the worthless Tsarist bonds. They put an advertisement in the "London Financial Times" last Friday urging people to boycott the Russian bond.

Commentators say the advertisement was designed to cause embarrassment to Russian Finance Minister Alexander Livshits who staged a London presentation to promote the new bond on the same day.

The launch of the Russian Eurobond follows an intensive promotional campaign in which teams of Russian bankers and advisers toured 14 cities in less than two weeks.

The marketing campaign started in Tokyo, moved to Europe, and then culminated in New York.

The British press had said the vocal opposition of an association of French investors holding the Tsarist bonds might cause markets to reflect on the wisdom of putting faith in the chaotic Russian economy.

But, despite this, the bond deal has stayed on course. British reports said investors have been focusing on the scale and potential of Russia's economy, and not on misdemeanors dating back many decades.

In addition, economics commentators say Russia has resolved its obligations towards both commercial and state creditors, something that has given confidence to international investors.

Until recently, the huge size of Russia's debts had prevented the bond issue. But the obstacles were cleared this year when Russia agreed to reschedule the payment of its debts to governments and private banks.

Russia's total foreign debt is about $120 billion, of which about $100 billion was inherited from the former Soviet Union.

The Russian bond, which has been under discussion for two years, is priced to yield more over five years than U.S. Treasury notes. It is expected to give investors an annual return of just under 10 percent.

The Russian bond issue was managed by a Swiss-owned concern, SBC Warburg, and U.S. investment bank, J.P Morgan. In promoting the bond, Warburg produced a document which suggests that Russia is running a massive trade surplus of $20 billion and a current surplus of 12 billion. This is said to be one reason for investors' interest in the new Russian bond.

The Eurobond paves the way for other Russian borrowers to follow, such as the cities of Moscow, St. Petersburg and the Sverdlovsk region.

The French holders of the worthless Tsarist bonds tried to block the new bond by saying Russia is historically a defaulting nation.

But sources in London said today "that Russia is a defaulted nation, which everyone knew at the outset . . . Mexico, the Philippines, every East European country: they are all defaulters. It's not a small club."
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