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Eurobonds for rubles: Russia makes first payment under new rules

The termination of Eurobond payouts in foreign currency does not translate to international debt default, Finance Minister Anton Siluanov underscored

MOSCOW, June 23. /TASS/. In a first, Russia has fulfilled its Eurobonds obligations using a new mechanism, which enables it to transfer payments in rubles. As Finance Minister Anton Siluanov said on Thursday, the termination of Eurobond payouts in foreign currency and the transition to payment in rubles does not translate to international debt default. Creditors have no grounds to think that Moscow is not performing its commitments properly.

In May, the United States did not renew Moscow’s license that made it possible to service Russian external debt in foreign currency, and in early June, the National Settlement Depository (NSD) fell under the European Union’s restrictive measures. This forced Russia to use a new mechanism.

Here is a summary on the situation from TASS.

New mechanism

On June 22, President Vladimir Putin signed a decree on a temporary procedure for Eurobond payments. The document implies that Moscow will now consider its obligations completed "if they are fulfilled in rubles in an amount equivalent to the value of obligations in foreign currency" at the exchange rate on the day the funds are transferred to the central depository (NSD), through which they will be brought to creditors.

Thanks to the new mechanism, Russia will be able to fulfill its obligations not only to creditors whose rights are confirmed through the national depositories, but also to those "who cannot transfer funds under standard procedures," the ministry said.

To do this, the funds will be transferred in rubles to special accounts and adjusted in accordance with the current exchange rate until the actual settlement. However, holders of the securities will be required not only to confirm their rights to the payments, but also to waive any potential claims against Russia in writing. In addition, the transfer will require a "personal" ruble account in one of the authorized Russian banks (their list should be determined by the government by the end of next week).

The Finance Ministry assured that Eurobond holders have the right to convert ruble payments into any currency and withdraw the funds abroad: "Permits <...> will be provided in due manner."

First payment

On Thursday, the Finance Ministry announced that it had made the first payment under the new rules. It transferred 12.51 billion rubles (equivalent to $234.85 million) to the NSD for payments on bonds maturing in 2027 and 2047.

"That means that the Finance Ministry has fully performed commitments to service government securities of the Russian Federation," the ministry noted.

Talking to reporters Siluanov stressed that changing the currency of payments does not mean declaring a default on external debt. The transition to rubles in Russian sovereign debt repayments was brought on only by the refusal of foreign counterparties to process payments in foreign currency, he explained.

West’s schemes to pin ‘default’ label on Russia

The launch of the new payment mechanism does not mean that the West will consider Russia's obligations fulfilled. According to Siluanov, the United States and the European Union are cooking up fictitious obstacles to servicing Russia's foreign debt in order to "put the 'default' label on it. "But everyone who is versed understands that this is not a default at all," the minister specified.

Moreover, it is still not clear whether the situation with the May payment, the holders of Russian securities were supposed to receive on May 27, has been resolved or not. As Bloomberg uncovered, although Moscow transferred the funds in advance, before the expiration of the American license, which enabled the debt to be serviced in foreign currency, they did not reach bondholders by the evening of May 27. If creditors do not report the receipt of money by Monday, June 27, Russia may be in default.

The Russian authorities have repeatedly stressed, the state has enough money: as of April 1, 2022, its external public debt amounted to $57.143 billion (including $37.26 billion of debt on external bonded loans), while international reserves amounted to $594.6 billion (as of June 10, 2022).