Eurobond payments: why Russia paid in rubles, whether the payment will pass and whether it threatens with a default

Until the payment went through, there is a threat of a formal default

Выплаты по евробондам: почему Россия заплатила в рублях, пройдет ли платеж и грозит ли это дефолтом

The Ministry of Finance of Russia announced, that fulfilled obligations under Eurobonds for 649.2 million dollars. The Ministry for the first time made payments in rubles.

Russia transferred money to holders of Eurobonds of issue No. 12840060V Russia-2022 and No. 12840061V Russia-2042.

Why paid in rubles

Due to sanctions, the Ministry of Finance of the Russian Federation cannot use gold and foreign exchange reserves and pay debts in foreign currency. But several times Russia paid its external debt in dollars: money was debited from the frozen accounts of the Central Bank of the Russian Federation in the USA. Payments were made after the issuance of individual permits by the authorities to the US Treasury Department correspondent bank J. P. Morgan and its payment agent Citibank or Bank of New York Mellon.

Eurobond holders have been paid interest on five bond issues since the freeze on reserves. A US Treasury license allows investors to receive payments on Russian sovereign Eurobonds up to 25 May 2022.

4 April, the Ministry of Finance of the Russian Federation was supposed to pay a coupon for $84 million on Eurobonds maturing in 2042 and redeem bonds with the payment of the last coupon for $552.4 million. But on the same day, the United States banned Russia from making payments in cash from frozen reserves..

Russia failed to pay in dollars for these two Eurobonds. Foreign correspondent bank refused to execute payment orders, sent in accordance with the issuing documentation 30 And 31 Martha. The Ministry of Finance of the Russian Federation could try to transfer rubles to the bank and ask to buy currency. Not yet known, Has the ministry made such a request?.

The Ministry of Finance of the Russian Federation attracted a Russian financial institution to pay. The money was transferred to the National Settlement Depository in rubles at the rate of the Central Bank for 4 April.

Will Eurobond holders be able to convert money into dollars?

Investors from countries, included by Russia in the list of "unfriendly", can receive payments to type C accounts. You can withdraw money from such accounts only on several grounds., including for paying taxes and commissions within Russia. It is possible to transfer rubles to another currency only with the permission of a special subcommittee of the Ministry of Finance.

The Ministry stated, that the restoration of Russia's access to foreign currency accounts will create the preconditions for, that the authorities allow foreign investors to convert rubles into another currency.

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What threatens Russia with the payment of these Eurobonds in rubles

In terms of Eurobond issues, it is said, that their denomination is dollars. There are also events, which will be considered default. For example, non-payment by Russia of any amount within 30 days after the deadline. In this way, default on sovereign debt may already occur 4 May.

The international rating agency Fitch warned, that the payment of interest by Russia on dollar bonds in rubles will mean a default at the expiration of 30 days. Rating to be downgraded to RD (Restricted Default).

The Bank of Russia considers, that payment on Eurobonds in rubles “cannot be recognized as a default event”. The regulator warned, that Russian creditors will not be able to present the debt for repayment, if foreigners consider payment in rubles a default.

For ordinary citizens of the Russian Federation, a default on sovereign debt will not result in a sharp deterioration in living standards. Consequences may come in the future, because Russia, Most likely, will no longer be considered a reliable partner, which means, and reduce foreign investment. We took apart, what is a default and how it can affect ordinary Russians.

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