14 Mar 2022 12:45

Russia's MinFin approves procedure for payments on Eurobonds via 'S' accounts for foreigners

MOSCOW. March 14 (Interfax) - Russia's Finance Ministry has approved a temporary procedure for making payments on government bonds in foreign currency that calls for using 'S' type accounts for payments to nonresidents, the ministry said.

"In order to meet government debt obligations of the RF on Eurobonds, the Finance Ministry will give payment instructions to agent banks to make payments in foreign currency and according to the dates set by the corresponding issue documentation. The actual ability to make these payments will depend on sanction restrictions in regard to the ability of the government and Bank of Russia to administer funds in their foreign currency accounts," the ministry said.

If a foreign correspondent bank does not execute a payment order on Eurobonds, it will be recalled and in this case the Finance Ministry will make payments on Eurobonds in rubles at the Bank of Russia rate on the date of payment set by the documentation of the Eurobond issue.

If the global certificate of the Eurobond issue is kept at the National Settlement Depository (NSD), the funds will be transferred to the NSD to carry out settlements without using an 'S' account, and if it is kept at a foreign depository the funds will be transferred to the NSD and deposited in the regular accounts of persons whose rights are recorded in the system of custody accounts in Russian depositories and the 'S' accounts of foreign credit institutions acting as payment agents.

The bank will provide information on agent banks' fulfilment of their obligations at a later time.

Finance Minister Anton Siluanov said in the ministry statement that Eurobond issues since 2018 have allowed for the possibility of making payments on the bonds in rubles.

"Statements that Russia cannot meet its obligations on the government debt are not true. We have the necessary funds to service our obligations. The freezing of the foreign currency accounts of the Bank of Russia and government of the RF can be regarded as a desire by a number of foreign countries to arrange for an artificial default that has no real economic basis. We are also prepared to make payments in rubles at the Bank of Russia exchange rate on the date of payment. Moreover, for issues of Eurobonds issued since 2018, such a possibility was written directly into the issue documents," Siluanov said.

A presidential order published earlier set out a temporary procedure for meeting obligations to some foreign creditors. For nonresidents from so-called unfriendly countries, the procedure is as follows: the debtor opens a special 'S' type account at a Russian credit institutions or central depository in the name of the foreign creditor or nominal holder, and then rubles in an amount equivalent to the obligations in foreign currency, at the Central Bank's official exchange rate on the date of payment, are deposited into this account "for subsequent transfer to the owners of securities who are foreign creditors."

However, these rubles can only be converted into foreign currency with permission from a subcommittee of the Russian government commission for control over foreign investment, which is headed by Siluanov.

The minister said conversion of the rubles paid to service Russian foreign debt will be possible with the unfreezing of the country's gold and foreign exchange reserves.

"We will first give all the necessary payment instructions to our agents in transactions in accordance with the issue documentation in order to make the payment in foreign currency. This will be possible only given the unfreezing of the foreign currency accounts of the Central Bank and government," Siluanov said.

"If we receive a refusal or do not receive a response from the agent banks, we will repay and service our obligations in rubles. In any case, obligations to our investors will be met. And the ability to receive the funds in foreign currency will depend on the imposed restrictions," Siluanov said.

The next payments on sovereign Russian Eurobonds are due on March 16, when the country is supposed to pay coupons on bond issues maturing in 2023 and 2043 and totaling $3 billion and $1.5 billion, respectively.