9 Jan 2024 15:25

Borrowers had hoped for easy exemption from Eurobond substitution, but Russian govt commission has taken tough stance - Moiseyev

MOSCOW. Jan 9 (Interfax) - The delayed process of replacing Eurobonds with local bonds is due to the fact that many borrowers expected to easily obtain permission from the government commission not to replace Eurobonds, Deputy Finance Minister Alexei Moiseyev said. However, the commission's tough stance on this issue has minimized the possibility of exceptions, and Eurobonds are being substituted even by those who initially categorically did not want to do so.

According to the presidential decree published in May last year, Russian companies and banks were obliged to place replacement bonds by the end of 2023. Some of them failed to meet the deadline, and on December 18, the mandatory substitution period was extended by six months - until July 1, 2024. Exemptions from substitution of Eurobonds can be obtained from the Government Commission for Monitoring Foreign Investment.

The peak of substitutions last year fell on November-December. The last deal was closed on December 29, while the first substitution this year will begin as early as January 10.

"The main reason is that everyone hoped that they would easily get the commission's clearance not to replace Eurobonds and were banking on this until the last moment. And in terms of refusals [on applications for one exemption or another to the restrictive norms] I think that the largest percentage of them, if you look at all the decrees as a whole - then for this decree, No. 430 [the decree on the mandatory issuance of substitute bonds], one finds the largest number of refusals by the commission," Moiseyev told Interfax in an interview.

"Companies were getting rejections in the fall. Why we initiated the extension of the deadline for mandatory substitution is we realized that people would simply not have time. In fact, you can see companies which for a long time categorically refused to substitute Eurobonds now substituting them. And the fact that these companies are now substituting Eurobonds is, it seems to me, a consequence of the commission's tough stance on the issue," the deputy finance minister said.

Clearance not to substitute Eurobonds is issued to all, almost semi-automatically, if Eurobonds are maturing in 2024 [Eurobonds maturity prior to December 31, 2024 is one of the official criteria for not substituting Eurobonds].

"Of those that are not redeemable in 2024, only in one case have we issued an authorization not to substitute Eurobonds for now. This borrower has really made a consent for the holders and less than a quarter of the Eurobond holders have said that they want replacement bonds. Based on this it was decided that it is possible to give them permission," Moiseyev said.

Severstal and Uralkali officially announced earlier that they had received permission not to substitute 2024 Eurobonds. At the end of the year, VEB, whose Eurobonds have a longer maturity - they mature in 2025, announced that it had received the same permission.

Answering the question regarding how the fulfillment of the decree can be controlled so that replacement terms do not need to be extended indefinitely, Moiseyev said that it is realistic to introduce mechanisms for such control.

"We are waiting with impatience for the Justice Ministry to fulfill the president's instruction to introduce norms into the legislation that penalize the non-fulfillment of decrees. All these decrees, they are issued within the framework of a law that gives the president emergency powers in certain situations. However, no articles of the Administrative Code are attached to the law. We did not manage to adopt it before the end of the year, but I hope that, perhaps, in early 2024, amendments to the code will be adopted which will introduce liability for failure to fulfill the entire set of decrees," the deputy minister said.

"For example, in the case of substitute bonds, the Central Bank registers their issuance, and in any case it is clear to it whether there is an issue or not. It is difficult to control KPIs or any other conditions that are deferred in nature, and control of such indicators is already on the conscience of sectoral ministries by and large. And here, it seems to me, it will be easy to control," Moiseyev said.