Russian investors able to receive payments on securities accumulated in 'C' accounts of foreign nominal holders
MOSCOW. March 19 (Interfax) - President Vladimir Putin signed a decree on March 19 that will enable Russian residents and entities they control to receive payments on securities they own through foreign infrastructure that have been accumulating since the spring 2022 in the type "C" accounts of foreign nominal holders and payment agents.
Decree No. 198 "On additional temporary measures of an economic nature related to fulfilling obligations on certain securities" applies to payments on shares/depositary receipts and bonds of Russian issuers, OFZ Russian federal government bonds and Eurobonds.
Owners of securities can send a Russian depository or debtor on Eurobonds who transferred funds to the “C” account of a foreign nominal holder or payment agent a request to make payments directly to their ruble bank accounts. The applications must include confirmation documents, the list of which will be determined by the Central Bank of Russia (CBR). The application and confirmation documents will have to be submitted within two months of the official publication of the relevant decision of the CBR board. The Russian depository or debtor on Eurobonds must decide within 31 days of this deadline whether to make the payments or refuse based on the verification of the grounds for the application.
Payments will not be made if the amount in the application exceeds the amount of funds intended for servicing these securities and transferred by the Russian depository or Eurobond debtor to the “C” account. “Reasonable doubt” about the completeness and veracity of the documents and information submitted will also be grounds for refusing payment.
Then, within two days of making the decision on payment, the Russian depository or Eurobond debtor will have to send notification to the foreign nominal holder or payment agent that the owner of the securities will be paid with the funds in the “C” account. If no reasoned objection is received from the foreign nominal holder or payment agent within 10 days after notification is sent, the Russian depository or Eurobond debtor instructs the lending institution at which the relevant “C” account is held to transfer funds to the securities owner. A lending institution that is the Russian depository/Eurobond debtor must debit funds from the “C” account of the foreign nominal holder/payment agent in order to transfer them to the bank account of the securities owner.
The decree establishes the following course of action for the central depository, as a result of which its obligations to return the balance of funds from the bank account (including “C” account) of the international settlement and clearing organization are considered properly fulfilled: within five days of the date on which the money is debited, it replaces obligations expressed in rubles with obligations expressed in foreign currency (at the CBR rate on the day preceding the day of replacement) and reflects the obligations in foreign currency in intrabank accounts that record obligations to the international settlement and clearing organization. The amount of obligations in foreign currency must not exceed the foreign currency balance in the central depository’s account at the international settlement and clearing organization.
Immediately after this, the Russian central depository sends the international settlement and clearing organization where it has its account notification about the replacement and fulfilment of obligations to it through the transfer of funds in foreign currency from its account at this settlement and clearing organization and an order to write down the money. The notification and order are considered to be received by the international settlement and clearing organization the day after they are sent by the central depository.
Russia’s central depository, the National Settlement Depository (NSD) has been subject to European Union blocking sanctions since June 2022 and its accounts at Euroclear and Clearstream, the settlement and clearing organizations referred to in the decree, have been frozen. Essentially the same option of replacing obligations using foreign currency in the NSD’s accounts at foreign depositories and recognizing these obligations as fulfilled when the relevant order is given was introduced last year for servicing Russian sovereign Eurobonds.
New Eurobond payment procedure
The decree also introduces a temporary procedure for fulfilment of debtors’ obligations to bondholders on Eurobonds that arise after March 19, the day the new decree goes into effect.
Bondholders who do not receive payments on Eurobonds can within 60 days after the latest payment send the debtor an application to make payments to their ruble bank account. The application must include documents confirming the demands stated by the Eurobond holder.
The debtor must decide within 10 days of when this two-month deadline expires whether to make the payments on the Eurobonds or refuse, based on a verification of the bondholder’s stated demands carried out with the Russian depository.
Payments are made in rubles at the CBR rate on the day of payment. After they are made, the Eurobond debtor transfers the remaining funds to the “C” account of the foreign nominal holder/payment agent.
This procedure does not apply to Eurobond debtors who have fulfilled obligations to bondholders by other means prescribed by presidential decrees.