Moody's: Russia's missed Eurobond coupon payment is a default
MOSCOW. June 28 (Interfax) - The Russian government's missed coupon payment on its Eurobonds is a default according to the Moody's international rating agency.
"On June 27, holders of Russia's sovereign debt had not received coupon payments on two Eurobonds worth $100 million by the time the 30-calendar-day grace period expired, which we consider an event of default under our definition," Moody's said in a comment.
Moody's also notes the likelihood of further defaults on coupon payments coming in the future.
The Russian presidential decree, dated June 22, 2022, introduced the procedure for paying external debt in rubles. Moody's said it was of the opinion that it would probably consider payments in rubles as a default on bonds that do not stipulate such a redenomination in accordance with the contractual terms.
Russian Eurobonds issued after 2018 can be redeemed in rubles under certain conditions. However, Eurobonds issued before 2018 either do not contain an alternative currency provision or only allow payments in another "hard" currency, such as the U.S. dollar, euro, pound sterling, or Swiss franc.
As reported on Monday, the 30-day grace period when Russia should have resolved the matter of remitting coupon payments on its 2026 and 2036 Eurobond issues expired.
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
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.
"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 brought 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.