Rouble dives as debt swap agreed

THE RUSSIAN government last night unveiled its long-awaited terms for a key restructuring of $40bn in short-term government debt, after a day of nerve-jangling confusion which saw the rouble crash 10 per cent against the dollar to 7.88.

Dealings on Russia's foreign exchange markets had to be suspended at one stage under local circuit-breaker provisions. It was the currency's biggest one-day fall for four years.

The deal announced last night will involve the swapping of holdings in one and two-year GKO and OFZ bills for three, four and five-year rouble- denominated bonds. The three-year bonds will carry a coupon of 30 per cent, with the coupon on the longer-dated bonds falling by 5 per cent a year from then on.

Investors will also be offered 2006 dollar-denominated bonds with a 5 per cent coupon. Those taking rouble bonds are to be offered a cash kicker worth 5 per cent of their holding.

Western bankers welcomed the fact that on a key point of principle - that foreigners should receive equal treatment with Russian nationals - Moscow has caved in to foreign pressure. However, there was concern at restrictions imposed to prevent the bonds being dumped on the open market for dollars once the debt swap is completed next week.

Traders said local banks were taking advantage of the attempts by the central bank to pump in liquidity to dump the currency wholesale in favour of dollars.

"It is getting more crazy. It is getting out of control," said David Riley at Fitch IBCA, the debt rating agency. "The idea was to have an orderly devaluation. But this is nothing of the sort."

In the midst of the crisis, three of Russia's largest banks - Menatep, Uneximbank and Most Bank - yesterday revealed that they were to merge.

The deal is likely to be followed by others as Russia's poorly capitalised banking system struggles to cope with the aftermath of last week's devaluation. Estimates suggested that the amount owed by Russian private sector banks to foreign counterparties could be as high as $38bn, if off-balance sheet deals are taken into account.

Russia's central bank chief, Sergei Dubinin, seemed increasingly caught between his desire to maintain monetary discipline and his fear that unless further liquidity was pumped into the system, some of the larger banks would go to the wall and with them bring down what is left of Russia's shaky financial system.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific