Home Top Global News Scrambling to avert Russian default, Putin allows ruble payments to creditors

Scrambling to avert Russian default, Putin allows ruble payments to creditors

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

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

Russian corporate bonds denominated in foreign currencies have plunged to deeply distressed levels in recent days as investors weighed the impact of sanctions imposed on the country in the wake of its invasion of Ukraine. The Russian government responded to the sanctions by reducing dramatically access to foreign currencies, which could restrict the ability of bondholders to receive interest and principal payments.

Separately, clearing houses Clearstream and Euroclear stopped accepting the ruble as settlement currency and have excluded all securities issued by Russian entities from all Triparty transactions, barring a traditional channel used to make payments to bondholders.

In a separate announcement on Sunday, the Central Bank of Russia said it will temporarily ease reporting requirements for Russian lenders in an effort to shield them from the pressure of sanctions. Commercial banks will no longer have to publish their monthly accounts on their websites, though they will still have to submit them to the central bank and then can disclose them to counterparties, the regulator said.

According to Saturday’s decree on servicing foreign-held debt, payments will be considered executed if they are carried out in rubles at the central bank’s official rate.

Debtors can ask a Russian bank to create a special “C” ruble-denominated account in the name of foreign creditors for settlement, while local creditors will be paid through Russian depositories. The rule applies to amounts in excess of 10 million rubles ($81,900) per month.

CDS hurdle

On March 2, Russia made payment on a 11.2 billion ruble coupon for 339 billion rubles of bonds known as OFZs due February 2024. While Russia’s National Settlement Depository received the money, foreign bondholders weren’t paid because of the central bank’s order barring foreign payments. That triggered a debate over whether or not that constituted a default.

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

That’s because, given the capital controls in Russia and the sanctions, the payment in rubles “may render these bonds out of scope for CDS as ‘obligations’ and ‘deliverable obligations’,” JPMorgan Chase & Co. strategists led by Trang Nguyen wrote in a note to investors on Friday.

Russia has $117 million worth of coupons on dollar bonds coming due on March 16 that don’t have the option to be paid in rubles, the JPM strategists said.

The CDS cover a gross $41 billion of Russian debt, according to the Depository Trust & Clearing Corp.

Read More: Bondholders Say Russia’s Yandex Has Paid Coupon on Dollar Debt

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

Here’s a selection of issuers scheduled to pay dollar-denominated notes in the coming months.

Upcoming maturities

Issuer

Maturity

Face Value ($m equivalent)

Rosneft Oil Co Via Rosneft International Finance DAC

March 6

2000

Gazprom PJSC Via Gaz Capital SA

March 7

1300

Polyus Finance PLC

March 28

482.8

Russian Government

April 4

2000

Russian Railways Via RZD Capital PLC

April 5

624.6

Borets Finance DAC

April 7

155.6

MMC Norilsk Nickel OJSC Via MMC Finance DAC

April 8

500

ABH Ukraine Ltd Via EMIS Finance BV

May 6

50

Upcoming corporate coupon payments

Issuer

Maturity

Coupon Date

Approx Coupon Amount ($m equivalent)

Russian Railways Via RZD Capital PLC

3/6/2023

3/6/2022

23

Rosneft Oil Co Via Rosneft International Finance DAC

3/6/2022

3/6/2022

42

Gazprom PJSC Via Gaz Capital SA

3/6/2023

3/6/2022

10.9

Gazprom PJSC Via Gaz Capital SA

3/7/2022

3/7/2022

42.3

Gtlk Europe Capital DAC

3/10/2027

3/10/2022

14

MMC Norilsk Nickel OJSC Via MMC Finance DAC

9/11/2025

3/11/2022

6.38

Russian Railways Via RZD Capital PLC

3/12/2026

3/12/2022

2.1

Eurochem Finance DAC

3/13/2024

3/13/2022

19.3

Upcoming sovereign coupon payments

Issuer

Maturity

Coupon Date

Approx Coupon Amount ($m equivalent)

Russian Government

9/16/2043

3/16/2022

44.1

 

9/16/2023

3/16/2022

73.1

 

3/21/2029

3/21/2022

65.6

 

3/28/2035

3/28/2022

102

 

3/31/2030

3/31/2022

87.5

 

4/4/2042

4/4/2022

84.4

 

4/4/2022

4/4/2022

45

 

5/27/2026

5/27/2022

71.3

 

5/27/2036

5/27/2022

32.3

With assistance from Laura Benitez, Richard Bravo and Ben Sills.

This story was originally featured on Fortune.com



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