Feb. 10 (Bloomberg) -- International banks proposed restructuring talks with Russian companies that owe $400 billion of foreign debt due in the next four years, according to the Russian Association of Regional Banks.

“Several western banks asked about holding discussions,” Anatoly Aksakov, head of the association, whose 450 members include Citigroup Inc.’s Russia unit, Alfa Bank and VTB Group, said in an interview. “It was their initiative to have talks on this topic to look at restructuring the debts of several companies, so that everyone can be calm.”

Banks such as London-based HSBC Holdings Plc suggested meetings with Russian companies concerning their ability to meet obligations, said Aksakov, who is also a lawmaker in the lower house of parliament. Less than $100 billion of international debt, $15 billion of which is due this year, may need to be restructured, he said.

Speculation of European bank losses on Russian loans drove declines in the euro against the dollar and yen today. Russian President Dmitry Medvedev has pledged more than $200 billion in emergency funding to support banks and companies as the 62 percent decline in oil prices since August and the ruble’s 34 percent tumble against the dollar push the world’s biggest energy supplier into its worst economic crisis since the government defaulted on $40 billion of domestic debt in 1998.

“I think that so far it is nothing more than just an idea that this association of Russian banks came up with,” said Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow. “I don’t think that many borrowers themselves have intentions to restructure and are aware of this idea.”

Government Role

Aksakov said the association asked the government to moderate any debt talks. The government “isn’t planning to consider” restructuring corporate debt and isn’t in talks with foreign banks on restructuring, said a Finance Ministry official, who declined to be named in line with ministry rules.

The Nikkei newspaper reported earlier that Russian banks and businesses may ask foreign banks to reschedule, citing an interview with Aksakov. The association has submitted the plan to the Russian government, the newspaper said. The association is already in talks with HSBC and Deutsche Bank AG, the Nikkei reported.

Deutsche Bank spokesman Dimitri Agishev in Moscow declined to comment when contacted by Bloomberg. Laine Santana, a spokeswoman at HSBC in Hong Kong, was unable to comment.

Aksakov later said his comments were misinterpreted.

“It would be most effective if the debt were restructured so it’s clear to everyone, creditors and borrowers, how the debt will be paid,” Aksakov said in a telephone interview with Bloomberg.

Ruble Rally

United Co. Rusal, Russia’s biggest aluminum producer, said today it aims to agree on restructuring its debt with lenders in the next two months. Rusal owes $16.3 billion to Russian and foreign lenders as well as one shareholder, said billionaire owner and Chairman Viktor Vekselberg on Jan. 30.

The euro pared its decline against the dollar, weakening 0.3 percent to 1.2964 per dollar by 4:57 p.m. in Moscow, after losing as much as 1.5 percent. Europe’s common currency fell 0.7 percent to 118.14 against Japan’s yen.

Russia’s ruble strengthened to a one-week high against the euro, climbing as much as 1 percent to 46.2092 per euro. It also gained 0.5 percent against the central bank’s dollar-euro basket to 40.5100, above the 41 level that Russia’s central bank has pledged to defend.

No ‘En-Masse Restructuring’

“I don’t see en-masse restructuring at this point,” said Eugene Belin, head of fixed income, currencies and commodities at Citigroup in Moscow. “Individual restructurings will take place but we’re not in a place now where we need to restructure systematically.”

Russia’s Micex stock index rose for a third day, advancing 2.6 percent to 717.06, as OAO Sberbank, the country’s largest lender, added 4.2 percent to 17.43 rubles, the highest in almost three weeks. Sberbank dollar bonds due 2015 gained, lowering the yield by 8 basis points to 16 percent.

Shares of VTB Group, the second largest, rose 2.1 percent to 2.5 kopeks. VTB Capital’s bond due next year yielded 13.97 percent today, down from 14.03 yesterday.

The banks association represents smaller, regional lenders, rather than the larger institutions that account for most of the debt, said MDM’s Galkin. “This is a good example of a fly growing into an elephant,” he said.

Foreign Reserves

Russia’s government and most companies and banks have accumulated sufficient foreign currency to cover about $135 billion of foreign corporate debt due this year, Aksakov said.

“The banking association isn’t empowered to hold talks, it can make suggestions, but the creditors themselves would be responsible for restructuring,” he said in an interview with Bloomberg Television today.

HSBC fell 2.9 percent and Deutsche Bank added 0.2 percent in European trading.

“People expect that part of these debts were from the European banking system,” said Sebastien Barbe, a strategist at Calyon in Hong Kong, the investment banking unit of France’s Credit Agricole SA. “You already have a very weak banking system in Europe. If you have these Russian issues, the next step would be questions about whether similar problems will come out of other eastern European countries.”

Russia will enter a recession and run a federal budget deficit this year for the first time in a decade, according to the government. The ruble tumbled 35 percent against the dollar since August, as the central bank drained more than a third of the country’s foreign-currency reserves to stem the decline.

Putin Funds

Prime Minister Vladimir Putin this month approved a further 400 billion rubles ($11 billion) of aid for Russian banks in the “second stage” of a bailout plan that targets consumers and companies in the “real sector” of the economy.

“No one in the Russian government has ever suggested any debt restructuring was contemplated,” said Eric Kraus, head of strategy at Otkritie Financial Company, a Moscow-based bank and brokerage. “The entire purpose of the slow, stepwise devaluation of the ruble was to allow companies to purchase sufficient foreign currency to repay debts maturing through 2010.”

To contact the reporters on this story: Torrey Clark in Moscow at tclark8@bloomberg.net; and Emma O’Brien in Moscow at eobrien6@bloomberg.net

Last Updated: February 10, 2009 09:17 EST