Outlook: Russian bonds

THE RETURNS once available on Russian GKO bonds - fabulous - might have been enough to make even the most naive of investors suspicious, but that sort of thing has never stood between the trader and his destiny, and once they got to hear about it, foreign bankers piled in like there was no tomorrow.

When Russia finally and inevitably defaulted last summer, foreigners were left holding around $40bn worth of the wretched things. Ever since, they have been desperately trying to salvage something from the wreckage. Now CSFB has come up with a plan that offers a ray of hope - though not much of one.

Russia's total external debt stands at about $100bn. It has around $8bn in foreign currency reserves. The national budget plans for payment of only about half the interest due this year. Fresh inflows of private capital, which had been helping the government to keep up payments, have shrunk from $15bn a year to zero. The economy is contracting, lower oil prices are cutting into export earnings, and the government's already poor ability to collect taxes has deteriorated to the point of near collapse.

The bottom line is that foreign creditors are not going to get much of their money back - even if, as rumoured, a new deal with the IMF is close. Small wonder, then, that the banks on the negotiating committee have differed over tactics. Deutsche Bank, which formerly chaired the committee, was generally condemned when it accepted terms that offered a mere 5 cents in the dollar, maximum.

Deutsche was nevertheless followed by Chase and Credit Lyonnais. CSFB has now struck out on its own with a proposed debt-for-assets swap, inviting other investors to join it. The plan comes with a stiff success fee of course; this is investment banking, after all.

Even so, CSFB expects the return on its new fund to be higher than the 5 cents on offer from the Russian government. Given Russia's fundamental inability to repay its debts, the asset swap approach may be the right one. Russia's vast oil reserves provide a ready source of dollar-denominated earnings which might be earmarked for investors. Still, they would be wise not to count on it. The basic arithmetic, combined with the country's unstable political and social situation, does not leave much room for optimism.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Life and Style
Couples have been having sex less in 2014, according to a new survey
New Articles
i100... with this review
Holly's review of Peterborough's Pizza Express quickly went viral on social media
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Blahnik says: 'I think I understand the English more than they do themselves'
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam