Putin signs decree on terms for replacing Russian sovereign Eurobonds
MOSCOW. Aug 8 (Interfax) - Russian President Vladimir Putin has signed a decree defining the terms for replacing Russian sovereign Eurobonds.
The document was published on the official Internet portal of legal information on Thursday.
Decree No. 677 on additional measures for the fulfillment of execution of the Russian Federation's public debt obligations to residents and foreign creditors in the form of government securities denominated in foreign currency establishes that the replacement of Russian government securities denominated in foreign currency is based on an expression of will of Eurobond holders, taking into account a number of requirements stipulated by the document.
To carry out replacement, the Finance Ministry receives Eurobonds from their holders with subsequent transfer to its account in the central depository and transfer in exchange for the replacement Eurobonds (the rights to these securities are recorded by the central depository). If Eurobonds cannot be transferred due to restrictions imposed by foreign states, international organizations and foreign depositories, then Russian Federation Eurobonds are replaced through the cession of rights.
The replacement securities will be credited to the depo accounts of holders of Russian Eurobonds opened in a Russian depository. The amount of coupon income on replacement Eurobonds, the frequency of payment, the maturity date and the nominal value must correspond to the terms of the Russian Eurobonds subject to replacement.
Segregation and registry of bondholders
Under the decree, depositories will have to ensure segregated accounting of replacement bonds if they are received as a result of the replacement of Eurobonds acquired after the decree went into effect (upon its publication) and if after this date the Eurobond holders were foreign creditors from unfriendly countries, taking into account exceptions provided by the presidential decree dated March 5, 2022.
Segregated accounting will not be done if permits specified by the presidential decrees are received to carry out the transactions, and when the Eurobonds being replaced are acquired in organized trading or from a holder (trust manager) who is not a foreign creditor and whose rights to the bonds are recorded by a Russian depository.
Transactions leading to the transfer of ownership rights, transfer to trust management or collateralization of segregated replacement bonds will require permission from the Central Bank of Russia (CBR) if the applicant is a credit or non-credit financial institution, or from a government commission in the case of all other applicants. Permits may contain conditions for the conclusion of such transactions if necessary.
The decree also stipulates that the central depository will, free of charge, compile a registry of Eurobond holders and verify confirmation documents, and if there are grounds to down their completeness or veracity will not include the bondholder in the registry.
The decree instructs the Finance Ministry, in coordination with the CBR, to determine the list of confirmation documents and deadlines for their submission by Eurobond holders for inclusion in the registry and establish the conditions for completing replacement transactions with holders of Russian sovereign Eurobonds.
Russia will continue to fulfil obligations on unreplaced Eurobonds in line with the presidential decree issued on September 9, 2023.
Lengthy preparations
The Finance Ministry began to actively prepare for the replacement of sovereign Eurobonds last year.
In July 2023, the State Duma approved amendments to the Budget Code proposed by the ministry that give the government the power to replace outstanding issues of Russian sovereign Eurobonds with new local bonds with similar terms given the consent of bondholders.
"Due to foreign financial institutions' sanctions against Russian securities, Russia's fulfilment of its obligations on Eurobonds was made difficult. Initially, we managed to solve the problem of conveying payments to Eurobond holders by creating a new temporary mechanism, established by a decree of the Russian president. The mechanism continues to operate, but as a result of replacement holders of securities will be able to exchange their Eurobonds for securities with identical parameters, but issued under Russian law in Russian financial infrastructure without the participation of foreign institutions," Finance Minister Anton Siluanov said, commenting on the potential replacement of sovereign Eurobonds last September.
The ministry planned to begin this process in the fourth quarter of 2023, but subsequently pushed these plans to 2024 because organizers and infrastructure were overloaded with the replacements of Eurobonds issued by corporate borrowers. The deadline for mandatory replacement of corporate Eurobonds was ultimately extended to the end of the first half of 2024 and the last such swap was only completed in August.
The director of public debt and government financial assets at the Finance Ministry, Denis Mamonov said earlier that Eurobonds with the code XS, meaning bonds with custody of global certificates in foreign infrastructure, will be first to be considered for replacement.
In the initial stage, four XS Eurobond issues with outstanding debt of 702.8 billion rubles ($7.8 billion) will be replaced, CBR analysts said in a report at the beginning of this year.
"With an average replacement ratio at the level of corporate issues, their replacement will add about 378.4 billion rubles ($4.2 billion) to the replacement bond segment. And the replacement of the Russian Finance Ministry's Eurobonds will make it possible to build a curve for the approximate cost of government borrowing in foreign currencies," the report said.