Post by : Saif Rahman

In a recent statement, Russian banks have expressed their readiness to assist Russian Railways in navigating its escalating financial challenges. VTB Bank's CEO, Andrei Kostin, conveyed that they are willing to consider restructuring portions of the company's hefty debt, provided the central bank maintains its current reserve requirements.

The financial woes of Russian Railways are significant, with debts nearing 4 trillion roubles. The government has been actively engaging in weekly talks with major banks, including VTB, to devise a strategy that preserves the company's stability while safeguarding the integrity of the financial system.

Kostin noted that banks might postpone interest payments and revise repayment plans, basing this flexibility on the central bank's preservation of existing reserve levels. In 2025, the permission for banks to restructure corporate loans without a rise in reserves hinged on borrowers maintaining timely payments and submitting a financial blueprint for the next three years. Creditors are advocating for an extension of this provision into next year to support Russian Railways without incurring additional financial burdens.

Additionally, Kostin indicated that an earlier proposal concerning the conversion of 400 billion roubles of debt into equity was dismissed, citing the central bank's reluctance for banks to invest beyond their primary operations. For larger banks, transforming debt into equity would result in capital and regulatory complications, rendering the notion impractical.

The financial distress faced by Russian Railways is attributed to a conjunction of elevated interest rates and significant government responsibilities. The company is required to continue capital investments in its rail network, particularly in the Far East, while maintaining certain routes generating losses, such as transporting coal from Russia to China. Kostin pointed out that the loss incurred from coal transport is illogical when the resource could otherwise power domestic data centers and bolster sectors like cryptocurrency mining.

Banks are awaiting Russian Railways to deliver a coherent financial strategy. The crucial factor remains whether the company can manage its substantial debt over the next three to five years. Ongoing discussions among the government, banks, and the central bank aim to avert financial strain on this vital state enterprise.

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