Ministry of Finance

The risk of declaring a technical default by Russia remains until July 8 – until this time, foreign holders of Russian Eurobonds must receive payments. This was reported by analysts interviewed by Izvestia. On June 23, the Ministry of Finance sent NSD coupons for two issues of Eurobonds in the national currency for a total of 12.5 billion rubles. In accordance with the new presidential decree, money can be credited to non-residents bypassing foreign payment agents. The receipt of money by foreign holders will depend on the goodwill of investors: whether they want to provide documents confirming the right to receive payment to NSD and open accounts in Russian banks, the experts explained.

Ruble tranche

According to the information of the Ministry of Finance, which Izvestia got acquainted with, On June 23, the agency must make a payment on Russian Eurobonds maturing in 2027 (for $51 million) and in 2047 (for $183.75 million). June 24 country there is one more payment to be made – for the issue of “Russia-2028” — for $159.4 million. These Eurobonds were issued before 2018, that is, they did not provide for payments in rubles.

22nd of June, Russian President Vladimir Putin has established a new procedure for payments on eurobonds in rubles, regardless of the issuance documentation of the issue. The obligations of the Russian Federation on Eurobonds will be considered properly executed if payments are made in the national currency, the decree of the head of state says. The new rules make it possible to service, among other things, sovereign Eurobonds of Russia, which are accounted for in the Euroclear and Clearstream depositories, which have ceased to work with the National Settlement Depository (NSD). The payment amount in rubles is calculated at the foreign exchange rate on the day of the operationnoted in the decree.

On June 23, the Russian Ministry of Finance announced that funds for the payment of coupon income on Eurobonds “Russia-2027” and “Russia-2047″ in the total amount of 12.51 billion rubles (the equivalent of $ 234.85 million) were received by the paying agent for Eurobonds – NPO JSC ” NSD”. Thus, the obligations to service the external debt have been fully fulfilled, the ministry stressed. NSD confirmed to Izvestia that they had received funds from the issuer for payment. The income will be distributed among Eurobond holders in accordance with the procedure established by the presidential decree, the NSD added.

Photo: Izvestia/Konstantin Kokoshkin

The new rules legislate the procedure for payments on Eurobonds in foreign currency in the face of sanctions pressure – the refusal of the US Treasury to renew a license allowing Russia to service external debt, and the introduction of EU sanctions against NSD, explained Finam’s analyst Alexei Kovalev. The license of the US Treasury, which was valid until May 25, allowed holders of Russian Eurobonds to receive money despite sanctions – thus the country avoided a technical default.

The transfer of money from the Ministry of Finance of the Russian Federation to NSD does not yet mean that the funds have reached the ultimate holders of securities, Alexander Shurakov, a leading debt market analyst at Otkritie Investments, told Izvestia. According to him, since the temporary order was introduced only yesterday and has not yet been tested in practice, it is still difficult to say exactly when holders of sovereign Eurobonds will receive payments.

Izvestia sent a request to the Ministry of Finance about whether the money reached the final owners of Eurobonds.

By good will

For Russian holders of Eurobonds of the Ministry of Finance of the Russian Federation, and they account for about half of the debt, the presidential decree is quite positive news, Alexander Shurakov noted.


Photo: Izvestia / Pavel Bednyakov

– They will be able to receive payments in accordance with the payment schedule, regardless of external restrictions. As for foreign holders of Eurobonds, for its part, Russia has done everything it could: the temporary procedure for making payments takes into account the interests of non-residents too. Ruble payments can be converted into foreign currency and withdrawn without restrictions, without additional conditions such as “defrosting gold and foreign exchange reserves,” the expert explained.

Payment in rubles will definitely reach Russian holders who are serviced by Russian depositories, expects the manager for the analysis of the banking and financial markets of PSB Dmitry Gritskevich. He continued: if ownership rights are accounted for by foreign depositories, then investors will have to apply directly to NSD, confirming their right to own securities. Also, in order to receive a payment, the investor will need to have a ruble account in a Russian bankadded the expert. Until the ownership rights are confirmed, payments from the Ministry of Finance for this category of investors will be credited to NSD for a special ruble type “I”.

The “X” day for Russian external debt in foreign currency is the first ten days of July, said Alexey Kovalev from Finam. He explained: On June 24, payments on the dollar issue “Russia-2028” are due: the grace period during which the issuer (RF) must resolve the issue with payments is not the standard 30, but 15 days. Thus, approximately two weeks after the payment date − July 8 – it will become clear whether the holders of Russian Eurobonds considered the proposed scheme for crediting funds acceptablethe analyst estimated.


Photo: Izvestia / Pavel Bednyakov

If the holders do not receive the due funds on time, the question of declaring a technical default on Russia’s external debt will again arise, Mark Goykhman, chief economist at the TeleTrade information and analytical center, stated. Formally, a default can be declared only after the entry into force of a court decision of the relevant jurisdiction to satisfy the claim of the Eurobond holder, recalled Dmitry Gritskevich from PSB. He added that under sanctions pressure, the fact of a technical default does not pose any additional economic risks for the country’s economy.

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