A Russian ruble banknote is seen in front of a descending and ascending stock chart in this illustration dated March 1, 2022. REUTERS/Dado Ruvic
- Eurobond ruble payment offer raises fears of non-payment
- Moscow does not say whether bondholders have to take rubles
- Russia has already demanded gas payments in rubles
- Move can help locals facing dollar payment restrictions
LONDON – Russia on Tuesday retaliated in a so-called “economic war” with the West by offering to buy back its $2 billion Eurobonds maturing next month in rubles instead of dollars.
The Treasury Department’s bid for eurobonds maturing April 4, Russia’s biggest debt payment this year, follows Western moves to tighten sanctions on the country over its invasion of Ukraine and cut Moscow off from international funding.
Moscow, which describes its actions in Ukraine as a “military special operation,” says Western action is “economic warfare.” In response, she has already urged foreign companies to pay for Russian gas in rubles instead of dollars or euros. Continue reading
It wasn’t immediately clear whether bondholders would be forced to accept rubles if they rejected the offer, a move that would break the bond’s terms and again raise the prospect of Russia’s first default in a century.
Creditors said it could aim to help Russian holders, who now face restrictions on receiving dollar payments.
“This is a takeover bid and not a final decision that these bonds will be paid for in rubles. Perhaps the Russian authorities want to gauge investors’ willingness to accept payment in rubles?” said Seaport Global credit analyst Himanshu Porwal.
Tim Ash of BlueBay Asset Management, which is not a bondholder, said the move is part of a fight by Russia’s central bank and finance ministry “to stave off a default and stabilize markets and the ruble.”
Ash said the United States Office of Foreign Assets Control (OFAC), which enforces US sanctions, “should be clear” that it will not extend a May 25 deadline for US persons or entities to make payments on obtain Russian government bonds.
Russia’s Treasury Ministry said in its statement on Tuesday that bondholders should submit applications to sell their holdings to the National Settlement Depository between March 29 13:00 GMT and March 30 1400 GMT.
SECURE PAYMENT
The Eurobonds would be bought at a price equal to 100% of their face value, it said.
A fund manager said the ministry’s offer could serve to help Russian investors secure payments as Euroclear, an international settlement system, has blocked dollar payments to Russia’s clearing system.
“Everyone wants dollars right now — inside and outside of Russia — so I would expect only local holders and local banks that have sanctions issues to take advantage of this operation,” said Kaan Nazli, portfolio manager at Neuberger Berman, which recently reduced its exposure to Russian sovereign debt.
Nazli, who said he had not previously seen a buyback that changed the repayment currency, added that foreign investors were unlikely to be interested as the ruble is “no longer a convertible currency”.
The ruble initially collapsed after the West imposed sanctions and has plummeted by as much as 40% in value against the dollar since early 2022. It has since recovered and was down about 10% in Moscow on Tuesday.
The Treasury did not provide a breakdown of foreign and Russian holders of Eurobond-2022. It didn’t respond to a query about how much of the outstanding $2 billion it planned to buy back or what would happen if investors rejected the offer.
The bond has a 30-day grace period and no provision for alternative currency payments, JPMorgan said.
Major asset managers including Brandywine, Axa, Morgan Stanley Investment Management and BlackRock were among recent holders of the April 4 bond, according to Refinitiv database eMAXX, which analyzes public filings.
The Treasury Department earlier Tuesday said it had paid in full a $102 million coupon on Russia’s Eurobond maturing in 2035, the third payout since Western sanctions threatened Moscow’s ability to service its foreign currency debt .
Russian government debt repayments have so far flowed through and averted a default, even though sanctions have frozen part of Moscow’s vast foreign exchange reserves. Russian officials have said that any problem with the payment that results in a formal declaration of default would be an artificial default.
Russia’s next payment comes on March 31, when a payment of $447 million is due. On April 4, it was also scheduled to pay an $84 million coupon on a 2042 government bond. Continue reading
Reuters reporting; writing by Edmund Blair; Edited by Alexander Smith and Carmel Crimmins