Russian Duma passes law enabling issuers to exchange forex bonds for ruble bonds in 2026

MOSCOW. Dec 18 (Interfax) - The Russian State Duma has passed a law enabling issuers to offer ruble-denominated bonds to holders of their bonds denominated in the currencies of unfriendly countries until the end of next year, thereby exchanging their outstanding foreign-currency bonds for these bonds.

The relevant amendments in bill No. 876952-8 were proposed by a group of deputies.

The amendments establish that Russian issuers of outstanding bonds denominated in the currencies of unfriendly states and territories may, until December 31, 2026 inclusive, place among holders of bonds denominated in foreign currency "bonds the face value of which is denominated in Russian rubles or denominated in a foreign currency with their par value modified to Russian rubles in accordance with the decision to issue the bonds (ruble bonds), on the basis of their payment with foreign currency bonds."

The maturity date of ruble bonds must correspond to the maturity date of foreign currency bonds. The face value of the ruble bonds must reflect the face value of foreign currency bonds, calculated at the Central Bank's official exchange rate on the date specified by the decision to issue ruble bonds.

A number of restrictions are being lifted to facilitate the exchange of foreign currency bonds for ruble bonds, notably those concerning the face value of one subordinated bond (currently, the Law on Banks and Banking Activities states that the face value of one subordinated bond cannot be less than 10 million rubles), as well as the requirements of federal laws regulating the procedure for conducting and approving major transactions and related-party transactions. Also, if the holder of foreign currency bonds is not a qualified investor, ruble bonds requiring the holder to have qualified status can be placed in their favor. This condition also applies to holders of subordinated bank bonds and has already been applied when replacing foreign currency bank subordinated bonds with local bonds.

The bill states that foreign currency bonds acquired by their issuer as part of their substitution for ruble bonds are subject to redemption, and obligations to their holders are deemed duly fulfilled and are terminated from the moment of they are acquired. The period allotted to holders of foreign currency bonds to express their intention for the issuer purchase their bonds cannot be shorter than the placement period for the ruble bonds. The issuer may only place ruble bonds as part of a bond substitution among holders of foreign currency bonds that are used to pay for the ruble securities.

The acquisition by an issuer if its foreign currency bonds as per the proposed mechanism will not be treated as a trigger for the right of holders to demand their redemption or partial redemption. The relevant articles of the Federal Law on the Securities Market will not apply in the event of a partial acquisition of foreign currency bonds by the issuer as part of the substitution for ruble bonds.

The Central Bank's board of directors may impose requirements for the activities of banks, depositaries and other professional securities market participants as part of the proposed bond substitution.

VTB is one issuer with a lot of outstanding forex bonds for which substitution for ruble bonds might be pertinent. The bank has said repeatedly that it would like to convert its subordinated foreign currency issues into rubles. This year, the bank twice proposed that holders vote to convert the face value of these securities into rubles and change in the coupon rate on them to the key rate plus 5%.