Markets live, Wednesday, March 23, 2022

Foreign holders of Russian sovereign bonds maturing in 2029 are watching the sanctioned nation’s final debt payment draw closer to completion.

The $66 million coupon due March 21 was processed by Russia’s National Settlement Depository on Tuesday
(NSD), he said in a statement. Earlier in the day, the finance ministry said it had transferred the money to the NSD, fulfilling its obligations “in full”. Four bondholders in Europe said they had not received payment by 3:40 p.m. in London.

From then on, the money would typically flow to the custodian banks, which hold the assets in a safe place, and then to the bondholders’ accounts. But given the sweeping sanctions in place against Russia following President Vladimir Putin’s invasion of Ukraine, concerns will remain until the money actually lands in investors’ accounts.

Russia is determined to avoid a default because bondholders could then seize Western assets used as collateral. Credit:Bloomberg

“After a significant amount of speculation and consternation over a possible default, Russia has started paying coupons on two of its dollar bonds,” said Ben Robins, emerging market debt portfolio specialist with T. Rowe Price.

“It was a relief for the markets and bond prices rallied on the news of the payments. However, this should not be taken as a firm indication of what might happen to the rest of Russia’s foreign currency bonds. , which total more than approximately $40 billion.

He added that a sovereign default was “an extremely rare event” and that if Russia defaulted, it would be the first time since 1998.

Billions of dollars in Russian government and corporate debt have been called into question after two-thirds of the country’s foreign currency reserves were frozen, along with the overseas assets of many billionaires.

Russia has at least $400 million in interest to pay over the next 10 weeks, as well as a $2 billion bond it must repay next month, according to data compiled by Bloomberg. Last week the government paid out $117 million in coupons.

“Using their very limited foreign exchange reserves could be a good long-term investment – but that thinking clearly hasn’t been applied to managing their reputation elsewhere,” said Gordon Shannon, portfolio manager at TwentyFour. Asset Management. .

Unlike the terms of the bonds with coupon payments last week, the March 2029 prospectus has a fallback option on the ruble, which allows Russia to make the transfer in its local currency. This raised questions about the ultimate denomination of the payment and prompted investors to follow it from the start.

Russia sent the money to JPMorgan Chase & Co., which processed the payment after obtaining approval from the US Treasury Department, according to a person familiar with the matter, confirming an earlier Reuters report.

Unlike the previous week’s payment, the prospectus for this bond indicates that coupon settlement would be through Russia’s central securities depository and Euroclear, one of the largest clearinghouses in the world. JPMorgan declined to comment earlier.

This is not a process that investors typically follow. Back-office moves took center stage after sanctions and capital controls were imposed on Russia, and investors braced for a default. So far, the process is working, and not just for the sovereign.

Credit Bank of Moscow, a lender the Russian central bank has designated as systemically important, said it met its obligation to pay a $9.7 million coupon on its $500 million September 2026 bond Two bondholders, who declined to be named because they are not authorized to speak publicly about the matter, said they received payment.

Online lender Tinkoff Bank also paid its debt interest on its dollar-denominated perpetual notes on time. Several bondholders confirmed they received a $6.94 million coupon maturing March 15 and a $9 million coupon maturing March 20.

Companies and the sovereign have shown their willingness to meet their financial obligations – a relief for investors who thought they would not see their money after a presidential decree earlier in the month said some investors could be paid in rubles.

The government is “paying because it has significant Western assets that creditors could lay claim on if it goes bankrupt,” said Phillip Torres, senior portfolio manager of emerging market debt at Aegon Asset Management in Chicago.

“They are going to pay as much as they can. There is a real cost to going bankrupt that they would like to avoid.

Bloomberg

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