$40bn in repayments to be delayed

The Russian government last night announced the restructuring of its short-term debt. The debt restructuring involves switching some $40 billion (£28.6 billion) of short-term rouble-denominated debt into longer-dated bonds denominated in both roubles and dollars.

Much of the debt, in GKOs (Russian treasury bills) and OFZ bonds, is held by foreign investors, who have been waiting for details of the restructuring plan, since it was unveiled last week.

The restructuring plan was signed last night by President Boris Yeltsin and Mr Victor Chernomyrdin, the new prime minister, after the rouble continued to sink against the dollar, sparking fears that Russia would not be able to finance its foreign currency debt into next year.

Under the terms of the long-awaited plan, existing short-term debt will be exchanged for rouble-denominated bonds with maturities of between three and five years, which will pay interest at rates of between 20 and 30 per cent annually depending on when the bonds mature. The plan also allows foreign investors to switch existing debt holdings into dollar-denominated bonds, which will pay interest at 5 per cent annually and will mature in 2006.

Foreign bankers and economists have been comfortable with Russia's sovereign debt position throughout weeks of market turmoil, including the imposition of a 90-day moratorium on some foreign commercial debt and the closure of the local treasury bill market. But yesterday's slide in the rouble would put pressure on Moscow to dip into foreign exchange reserves to defend the currency, economists said.

However, a senior Russian finance ministry official said that a default was "beyond consideration".

Mr Oleg Bouklemishev, head of the international capital markets department, said the GKO swap would have no effect on the country's ability to meet its external debt payments.

Standard & Poor's and Moody's Investor Service rank Russia's rating low enough to imply its vulnerability to sovereign default.

Foreign bankers said that Moscow needed to service $15 billion to $17 billion in foreign currency debts next year.

Despite an estimated $7.5 billion due from the International Monetary Fund and World Bank next year, reserves have fallen to around $13 billion as part of a failed defence of the rouble. Prospects for borrowing abroad on international capital markets are slim due to battered investor confidence.