Major Russian banks, spearheaded by VTB, have expressed willingness to restructure the massive debt burden of state-owned Russian Railways. However, this crucial financial support is contingent on a key condition from the nation's central bank regarding reserve requirements.
The Core Condition for Debt Relief
In a recent interview with Reuters, VTB's Chief Executive Officer, Andrei Kostin, outlined the banking sector's position. VTB, which holds the title of Russian Railways' single biggest creditor, is actively engaged in weekly discussions with government officials to address the monopoly's staggering debt, estimated at 4 trillion roubles.
Kostin stated that banks are prepared to offer loan restructuring and defer payments. This move, however, depends entirely on the Central Bank of Russia not increasing reserve requirements for these specific loans. The central bank's current policy allows for such restructuring from 2025 without extra reserves, provided borrowers are current on payments and submit a three-year financial plan.
Creditors Reject Equity Conversion Proposal
A significant development from the negotiations is the outright rejection by creditors of a proposal to convert a portion of the debt into company shares. The idea, which involved converting 400 billion roubles of debt, was floated during government meetings but found no favour with the banks.
"Debt conversion into shares is a very complex process for banks," explained Kostin. He highlighted that the central bank opposes such investments in non-core assets, and the move would be challenging for banks in terms of capital adequacy. "The largest banks will not pursue conversion," he affirmed.
Root Causes and Alternative Solutions
Kostin attributed Russian Railways' financial strain to high interest rates and its state-mandated investment obligations. These include developing the railway network in the Far East and sustaining loss-making cargo operations in certain regions.
He cited the example of exporting Russian coal to China by rail as a loss-making activity. Instead, Kostin suggested a pivot towards the domestic tech industry. "There is no point in transporting coal to China at a loss when, for example, data centers, which need energy today, can be set up close to coal power stations. Cryptocurrencies can be mined, bitcoin, for instance," he proposed.
The Path Forward Awaits a Financial Plan
The immediate next step in the resolution process is awaiting a concrete financial model from Russian Railways. Banks are keen to assess whether the company can realistically repay its obligations over a three to five-year horizon.
"The question is, what financial model will be presented by Russian Railways, and whether the company will be able to repay all this money in three or five years. This topic is currently being worked on," Kostin concluded, indicating that while the framework for a solution is taking shape, the final outcome hinges on the railway giant's own recovery blueprint.
