27 Jun 2022 14:46

Investors have not received Russian Eurobond payments because of third-party actions; there is no default according to issue documentation - Finance Ministry

MOSCOW. June 27 (Interfax) - Investors have not received payments on two issues of Russian sovereign Eurobonds because of the actions of third parties, and this is not expressly stipulated in the issue documentation as a default event, Russia's Finance Ministry said in a statement.

The 30-day grace period when Russia should have resolved the matter of remitting coupon payments on its 2026 and 2036 Eurobond issues expired on Monday.

According to Bloomberg, foreign investors have not received the payments, meaning that Russia is in default.

Payments on the issues of Eurobonds were due on May 27; however, the United States Treasury Department's Office of Foreign Assets Control (OFAC) license, which allowed the transactions necessary to receive payments on Russian securities, expired on May 25, and the U.S. Treasury had announced in advance that it would not renew the license.

On May 20, a week before the expected payment, Russia's Finance Ministry transferred funds to the National Settlement Depository (NSD), the paying agent for the issues, and announced that it had fulfilled its obligations to service the debt securities in accordance with the issue documentation. The NSD, acting as the paying agent, reported that it had transferred the received Eurobond payments to depositors; however, the funds were "stuck" in Euroclear and never reached the holders.

The Finance Ministry reiterated in its message on Monday that the obligations to service government securities had been fulfilled in full in accordance with the issue documentation for Eurobond issues.

"Nevertheless, international settlement and clearing systems, having received the funds in full in advance, and having the legal - via the license of the U.S. Treasury's OFAC that expired on May 25 - and the financial ability - the funds were received on time on May 24 and 25 regarding payments in U.S. dollars and euros, respectively - to deliver the funds to the final recipients, did not take the necessary actions for this," the ministry said in a statement. Meantime, all market participants knew in advance about the expiration of the specified license, but did not take action to deliver the funds to investors, the Finance Ministry noted.

"Taking into account that the actions of foreign financial intermediaries are beyond the control of the Russian Finance Ministry, it seems appropriate for investors to contact the relevant financial institutions directly in case of non-receipt of payments on Russian Eurobonds from them," according to the statement.

The Finance Ministry also brings attention to the fact that in accordance with the issue documentation for the issues, a default event is the absence of payment from the debtor; however, the payment was remitted in advance on May 20, 2022.

"In this case, the non-receipt of funds by investors has not occurred as a result of the absence of payment, but, rather, because of the actions of third parties, which is not expressly stipulated in the issue documentation as a default event and must be considered as part of the general rules of law governing the terms of the issue, taking into account all the circumstances and good faith actions of the parties," according to the statement.