Issue of mandatory Eurobonds substitution has split the market, but fundamental decision has been reached - Russian MinFin official

MOSCOW. April 19 (Interfax) - A proposal to oblige Russian borrowers to replace outstanding Eurobonds with local bonds has split the market, but a fundamental decision on the need to substitute Eurobonds has been made, director of the Russian Finance Ministry's Financial Policy Department Ivan Chebeskov told reporters.

"Some say they are interested in this, and need to do it. And there are companies, issuers who say that this is not advisable. That is, the market has split, and here we are trying to find some kind of balance. But there is already a top-level decision that fundamentally there should be such a substitution. The question is who might be eligible for an exception, in what cases," Chebeskov said.

The Finance Ministry expects that a decree on the mandatory substitution of Eurobonds will appear in the near future; at present the draft document is under consideration by the presidential administration, he said.

"Basically, it's the same as it was in the president's instruction: the decree implies mandatory substitution for all issuers who have the relevant Eurobonds, but there will be exceptions for companies by decision of the government's sub-commission on foreign investment not to have to carry out such a substitution in some cases," Chebeskov said. The criteria for obtaining permission to not replace Eurobonds will be formed as part of the sub-commission's work, he said.

In late March, the Finance Ministry sent the government a revised version of the draft presidential decree on mandatory substitution of Russian borrowers' Eurobonds with local bonds, leaving the possibility of exceptions to the general requirement only by decision of the Government Commission on Monitoring Foreign Investment, Interfax sources familiar with the situation said.

Russian issuers may currently choose on their own how to deliver Eurobond payments to investors whose rights to Eurobonds are recorded by Russian depositories. They can do this either by organizing separate payments to holders in Russian and foreign infrastructure, or through the transfer of new local bonds to investors in place of Eurobonds.

Both of these options are envisaged in the presidential decree from July 5 of last year, and in both cases, investors whose rights are registered in Russia receive their payments in rubles at the exchange rate of the Central Bank on the date of payment. Since the start of the year, the Finance Ministry, the Economic Development Ministry and the Central Bank have been discussing amendments to the paragraph of the decree on the performance of obligations on Eurobonds to Russian holders, which would make the issue of substitute bonds mandatory for borrowers.