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Russian woes over $45bn debt backlog

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Russian woes over $45bn debt backlog

By Rachel Morarjee and David Oakley in London

Published: September 15 2008 03:00 | Last updated: September 15 2008 03:00

A backlog of $45bn in foreign debt held by Russian companies and banks needs to be refinanced by the end of the year amid increasingly difficult conditions as western investors reprice the risk of doing business there.

Many Russian companies held off raising debt this summer in the hope the cost of money would decrease, but there is now a backlog of $45bn in debt, according to Standard and Poor’s, the ratings agency.

The debt market has already shut to third-tier borrowers and the cost of borrowing money in Russia has jumped by 2-3 per cent even for blue-chip names, said Kingsmill Bond, strategist at Troika Dialog.

Smaller highly leveraged banks and companies in particular will face problems refinancing debt.

Russian Standard Bank is seeking to raise $200m in international loans, but its attempts could be hampered because it is junk rated, according to bankers.

Home Credit & Finance Bank, another junk-rated Russian bank with high credit risk, could also face difficulties in raising debt.

In contrast, Sberbank and VTB Group, which are state-owned and have government reserves on which to fall back, should weather the storm, bankers said.

Political risk has added to borrowing costs. The bruising battle for control of the TNK-BP joint venture, Russia’s invasion of Georgia and a growing fear of government interference in business have left western investors wondering whether debt payment could be used as a political lever, bankers and analysts said.

“Western banks and insurers are not just looking at Russia’s ability to pay, but its willingness to pay,” said Elizabeth Stephens, credit and political risk analysis head at Jardine Lloyd Thompson.

Additional reporting by Catherine Belton in Moscow

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