Putin wants to avert defaults with ruble payments to creditors

Russia and Russian companies will be allowed to pay foreign creditors in rubles to stave off defaults while capital controls remain in place, according to a decree signed by President Vladimir Putin on Saturday.

The decree establishes temporary rules for sovereign and corporate debtors to make payments to creditors from “countries engaged in hostile activities” against Russia, its corporations and citizens. The government will draw up a list of such countries within two days.

Russian corporate bonds denominated in foreign currencies have fallen to deeply shaken levels in recent days as investors weighed the impact of sanctions imposed on the country following its invasion of Ukraine.

The Russian government responded to the sanctions by severely restricting access to foreign currency, which could limit bondholders’ ability to receive interest and principal payments.

Separately, clearing houses Clearstream and Euroclear have stopped accepting the ruble as a settlement currency and excluded all securities issued by Russian companies from all triparty transactions, eliminating a traditional channel for payments to bondholders.

In a separate announcement on Sunday, the Central Bank of Russia said it would temporarily relax reporting requirements for Russian lenders to protect them from the pressure of sanctions.

Commercial banks no longer have to publish their monthly accounts on their websites, but still have to file them with the central bank and can then disclose them to counterparties, the regulator said.

According to Saturday’s decree on debt service abroad, payments are considered executed if they are made in rubles at the central bank’s official exchange rate.

Debtors can ask a Russian bank to open a special “C” ruble account on behalf of foreign creditors for settlement, while local creditors are paid through Russian depositories. The rule applies to amounts over 10 million rubles (€95,000) per month.

On March 2, Russia made a coupon payment of 11.2 billion rubles on 339 billion rubles of bonds, known as OFZs, maturing in February 2024. While Russia’s National Settlement Depository received the money, foreign bondholders were not paid due to the central bank’s order to freeze foreign payments. That sparked debate as to whether or not this constituted an outage.

While some of Russia’s foreign government bonds allow payments in rubles, the new measure could still pose a problem for holders of credit default swaps (CDS), which are used as insurance in the event of a default.

That’s because given Russia’s capital controls and sanctions, paying in rubles “could take these bonds out of scope for CDS as ‘commitments’ and ‘deliverable commitments,'” wrote strategists at JPMorgan Chase & Co. in charge Trang Nguyen issued a note to investors on Friday.

Russia has $117 million worth of coupons on dollar bonds maturing March 16 that cannot be paid in rubles, JPM strategists said.

According to the Depository Trust & Clearing Corp. the CDS cover Russia’s gross debt of USD 41 billion.

Companies with upcoming dollar bill maturities include state-owned oil producer Rosneft PJSC, whose $2 billion bond matures Sunday, and state-controlled energy giant Gazprom PJSC, which has a $1.3 billion bill due Monday Has. The latter was already in the process of settling that payment, Bloomberg previously reported.

https://www.independent.ie/business/world/putin-aims-to-avert-defaults-with-rouble-payments-to-creditors-41416942.html Putin wants to avert defaults with ruble payments to creditors

Fry Electronics Team

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