PRESS: Russia’s Novgorod Region commits default, 1st since ‘08

MOSCOW, Jun 10 (PRIME) -- The Novgorod Region has become the first Russian region to default since 2008 under a Standard & Poor’s definition after it failed to redeem a loan from VTB Bank, newspaper RBC reported Wednesday, citing a representative of the regional finance department.

The region has announced an auction to refinance the loan maturing on February 25, 2015, at 23.63%, but it failed. “Commercial banks, including VTB Bank, did not bid in the auction because they deemed the interest rate too low,” the official told the newspaper.

The government later agreed to raise a new credit from VTB Bank to refinance the old debt, which was redeemed within a month, he said. The loan totaled about 2 billion rubles, the official said.

The interest rate growth amid liquidity deficit on the financial market may trigger refinancing problems and even defaults, Karen Vartapetov, deputy director of state financing group of Standard & Poors, said. Regional debt is risky because it is often a short-term one, Vartapetov said.

The situation may repeat in other regions because federal aid to regions is shrinking, Vladimir Klimanov, director of the state economic regulation department of the Russian Presidential Academy of National Economy and Public Administration, said. It is hard to predict where it can happen, he said.

(55.9100 rubles – U.S. $1)

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