Russia Rejects Cyprus Rescue Bid

Russia spurned Cyprus's offers of assets for a bailout as the island nation's lawmakers begin debate on legislation to avert a financial collapse.

“I think we aren't able to get the support that we wanted to get,” Cypriot Finance Minister Michael Sarris said in an interview after checking out of the Lotte Hotel in Moscow. “But we must go back home because things are getting serious.”

Cypriot lawmakers begin debating legislation today to prevent a financial meltdown as the European Central Bank threatens to cut off a lifeline for the country's banks in three days unless a bailout agreement with the European Union is reached. Russian companies and individuals may have about $31 billion of deposits in Cyprus, which in turn is the biggest source of foreign direct investment in Russia.

“The only thing that Cyprus could hope for is Gazprom buying some reserves from them,” Vladimir Kolychev, head of research at Societe Generale SA's Rosbank unit in Moscow, said by phone. “It's not clear what these gas reserves are worth, and apparently Gazprom wasn't particularly interested.”

Russia has ended talks with Cyprus and will decide on participating in restructuring debt after the so-called troika overseeing euro-area bailouts makes its decision, Finance Minister Anton Siluanov told reporters today. The troika comprises officials from the European Commission, ECB and International Monetary Fund.

“We didn't close the door, didn't say we won't discuss anything,” Prime Minister Dmitry Medvedev said today at a briefing in the Russian capital with Jose Barroso, head of the European Commission. While “we are prepared to discuss various options for supporting” Cyprus, Russia's possible assistance is contingent on a consensus over a rescue plan between the nation and the EU, he said.

A solution to the crisis “can be found” and it must be acceptable to all members of the currency union, Barroso said. “I believe there is no time to lose,” he said.

Sarris met with First Deputy Minister Igor Shuvalov and Siluanov on March 20, asking Russia to restructure a 2.5 billion-euro ($3.2 billion) loan that was granted in December 2011 by extending its duration beyond 2016 and lowering the rate. The Mediterranean island nation is seeking to overcome a deadlock after lawmakers rejected an unprecedented 5.8 billion- euro levy on bank deposits that the Eurogroup proposed.

'Not Ready'

“I think the loan will be extended and the conditions adjusted,” Sarris said. “But the rest of the support, we are not ready to have concluded anything.”

A new loan to Cyprus wasn't considered because it would have exceeded a European debt limit, Siluanov said. Cyprus had asked Russia for about 5 billion euros, three Russian government officials said yesterday, asking not to be identified because the talks were private.

The euro-area nation sought to attract Russian capital into a proposed investment fund that would include gas, banking and other assets, intended to help raise the 5.8 billion euros needed to trigger emergency loans, Siluanov said. “Investors didn't show interest,” he said.

OAO Rosneft and OAO Gazprom, Russia's state-run oil and gas producers, received an offer only to participate in tenders for Cypriot offshore assets and weren't interested, a Russian government official said today. State-run OAO Sberbank and VTB Group, Russia's two largest lenders, said they didn't plan to buy assets in Cyprus.

Sarris said March 20 that talks would last “as long as it takes,” while his hotel room had been booked until March 25, according to hotel reception.

The euro appreciated 0.2 percent to $1.2929 at 1:52 p.m. in Moscow. Russia's Micex Index declined 0.8 percent to 1,448.11, while the ruble was little changed at 34.9767 against the central bank's target dollar-euro currency basket.

Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody's Investors Service. Including loans to companies registered in Cyprus, Russia's exposure is about $60 billion, Moody's estimates.

Bloomberg News

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