6 Mar 2022 14:37

Holders of Russian issuers' external debt to get payments in rubles; conversion into foreign currency only with permission of authorities - decree

MOSCOW. March 7 (Interfax) - The holders of the external debt of Russia-based issuers will receive payments in Russian rubles and may convert the money into the original currency of payment only at the approval of authorities; this rule applies to non-residents from countries that have joined anti-Russian sanctions, i.e. to the bulk of the debt market.

Late on Saturday, the Kremlin published a presidential decree establishing a temporary procedure for fulfilling obligations to certain foreign creditors. For non-residents from unfriendly countries, the decree stipulates the following scheme: a debtor opens a special Type S account with a Russian lender/central depository in the name of a foreign creditor or nominal holder. Rubles will be transferred there in an amount equivalent to the value of obligations in a foreign currency based on the official exchange rate of the Central Bank of Russia, as of the day of payment, "in order to be further remitted to foreign creditors holding securities," the presidential decree says.

The Central Bank of Russia (CBR) has clarified to Interfax that such amounts in rubles may be converted into a foreign currency only if permitted by the government commission that oversees foreign investments. The commission's role in the new system of capital control is determined under the presidential decree of March 1 "on additional temporary measures of economic nature to ensure financial stability of the Russian Federation."

"The owner of a Type S account may apply [to the commission] for the permission for currency conversion," the CBR press service said.

As for creditors who are Russian residents and creditors from countries which have not joined sanctions on Russia, they will be able to receive payments on the debt in rubles in the amount of a ruble equivalent at the exchange rate at the time of payment, and in case of special permission in the currency of the debt, the Central Bank said in an official explanatory note. At the same time, there are no restrictions on the use of rubles received by creditors, including in terms of conversion operations.

Several redemptions of Eurobonds by large Russian emitters will take place in the next few days: Rosneft ($2 billion, on March 6), Gazprom ($1.3 billion, on March 7), Norilsk Nickel ($500 million, on March 9). These are the leading Russian exporters, and their solvency currently raises no doubts even taking into account the anti-Russian sanctions, but the market is concerned about the very possibility of fulfilling the obligations under the currency control measures imposed by the Russian authorities. An Interfax source in one of the major management companies believes that a payment on Eurobonds in rubles instead of the original currency of payment may be regarded as a default.

The nearest payments on sovereign Eurobonds are due on March 16 (coupons on issues maturing in 2023 and 2043 for $3 billion and $1.5 billion, respectively).

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