25 May 2022 14:36

Russia to service dollar-denominated debt in rubles in absence of OFAC license - MinFin

MOSCOW. May 25 (Interfax) - Russia will service its foreign government debt in rubles in the absence of a license from the U.S. Treasury Department allowing for payments in dollars, the Russian Finance Ministry said.

Earlier, OFAC, the U.S. Treasury Department unit responsible for sanctions enforcement, announced that it would not be renewing a license that expires on May 25 and allows transactions necessary to receive payments on the debt obligations of the Russian Finance Ministry and the Central Bank of Russia.

The U.S. Treasury Department's decision to refuse to extend the license for investors to receive payments on Russian government debt primarily infringes on the rights of foreign investors in Russian debt instruments and undermines confidence in Western financial infrastructure, the Russian Finance Ministry said.

"The Russian Finance Ministry, as a responsible borrower, confirms its readiness to continue servicing and repaying all debt obligations. Given the refusal to extend the said license makes it impossible to continue servicing public foreign debt in U.S. dollars, payments will be made in Russian currency with the possibility of their subsequent conversion into the original currency of the obligation through the National Settlement Depository (NSD) as a payment agent," the ministry said.

"The current situation has nothing to do with the situation in 1998, when Russia did not have enough money to repay its debts. Now there are funds, and there is a willingness to pay, too. This situation artificially created by an unfriendly country will not affect the quality of life of Russians," Russian Finance Minister Anton Siluanov was cited as saying in the report.

The MinFin said payments to holders of Russian Eurobonds within the Russian accounting infrastructure will be made to their accounts with the NSD.

Payments to holders using foreign financial intermediaries will be remitted to the type "C" accounts of these intermediaries with the subsequent possibility of restoring access to funds for investors who have provided NSD with documentary confirmation of the rights to receive the corresponding payments.

The next payments on Russian forex-denominated Eurobonds are due on May 27 - these are coupon payments on Russia-2026 and Russia-2036 bonds in dollars and euros. However, the MinFin said on Friday - when the OFAC license had not expired, but it had already emerged that it would not be renewed - that it had transferred funds to the payment agent for these issues, NSD, and had honored its obligations to service the bonds in keeping with issue documentation. It is not known whether these funds have reached all investors.

If Russia has no problems with these payments, the next point of reference for a potential default, possible grounds being payments in rubles, will be late June: payments are due on June 23 for two dollar bonds, Russia-2027 and Russia-2047; and on June 24 for another dollar issue, Russia-2028.

The grace period during which Russia would have to resolve the problem with payments in foreign currency is 15 days for the 2028 issue rather than the standard 30 days, so Russia could be in a state of default within two weeks of Jun 24.