Russia has launched an offer to buy back Eurobonds of the ruble in exchange for repayment of looming bonds worth $2 billion

An image shows Russian ruble coins in this illustration taken on October 26, 2018. The photo was taken on October 26, 2018. REUTERS/Maxim Shemetov

LONDON (Reuters) – Russia has offered to buy back dollar bonds maturing next week in rubles, a move analysts say will help holders of the $2 billion sovereign issue receive payments, while easing the country’s hard currency repayment burden. .

The Finance Ministry’s offer of an international bond maturing on April 4, Russia’s largest debt payment this year, follows Western moves to toughen sanctions on the country over its invasion of Ukraine and Moscow’s freezing of international funding.

Moscow, which describes its actions in Ukraine as a “special military operation”, says the Western actions amount to “economic war”. In response, it introduced countermeasures and demanded that foreign companies pay for Russian gas in rubles rather than dollars or euros. Read more

The ministry said in a statement that the bonds – which were issued in 2012 – will be purchased at a price equal to 100% of their face value. Buying the bonds again will reduce the total size of the bond due when it matures on April 4.

However, it was not immediately clear whether the amount the government will buy back is limited or what will happen to the properties of creditors who will not submit their bonds.

The terms of the bond state that payment must be made in dollars. Payment on maturity in rubles could raise the possibility of Russia’s first default on external sovereignty in a century.

Analysts and investors said the move was likely designed to help Russian share holders who now face restrictions in receiving payments in dollars.

“This is a tender offer and not a final decision that these bonds will be paid in rubles. Perhaps the Russian authorities want to gauge the willingness of investors to accept payment in rubles?” said Seaport Global credit analyst Himanshu Purwal.

Tim Ash of BlueBay Asset Management, who is not a bondholder, said the move was part of a battle by Russia’s central bank and finance ministry “to stave off defaults and stabilize markets and the ruble”.

Ash said the US Office of Foreign Assets Control (OFAC), which imposes US sanctions, “should make it clear” that it will not extend the May 25 deadline for US individuals or entities to receive payments on Russian sovereign bonds.

Russia’s Finance Ministry said in its statement on Tuesday that bondholders should submit applications to sell their holdings to the National Settlement Deposit between 1300 GMT on March 29 and 1400 GMT on March 30.

Safe Payment

A fund manager said the ministry’s offer may be designed to help Russian investors secure payment because Euroclear, an international settlement system, was blocking payments in dollars to Russia’s clearing system.

said Kan Nazli, portfolio manager at Neuberger Berman, which recently reduced exposure to Russian sovereign debt.

Nazli, who said he had never seen a buyback that changed the payment currency, added that foreign investors were unlikely to be interested given that the ruble was “no longer a convertible currency.”

The ruble initially collapsed after being sanctioned by the West, and has fallen as much as 40% in value against the dollar since the start of 2022. The ruble has since recovered and was trading around 10% lower in Moscow on Tuesday.

The Finance Ministry did not provide details of the foreign and Russian holders of the Eurobond 2022. It did not respond to a request about how much of the $2 billion owed it wanted to buy back or what would happen if investors turned down the offer.

JP Morgan said the bonds have a grace period of 30 days and there are no provisions for payments in alternative currencies.

According to the Refinitiv eMAXX database, which analyzes public filings, major asset managers such as Brandywine, Axa, Morgan Stanley Investment Management and BlackRock were recently among the holders of bonds maturing on April 4.

The Finance Ministry said earlier on Tuesday it had paid in full a $102 million coupon for Russian euro bonds due in 2035, the third payment since Western sanctions that have raised questions about Moscow’s ability to service its foreign currency debt.

Repayments of Russian sovereign debt have passed so far, to avoid default, although sanctions have frozen a significant part of Moscow’s huge foreign reserves. Russian officials have said that any payment issue that leads to an official declaration of default would be an artificial default.

The next payment to Russia will be on March 31, when the $447 million payment is due. On April 4, it also has to pay $84 million in a $2,042 coupon for a sovereign dollar bond. Read more

Reporting by Reuters. Written by Edmund Blair. Editing by Alexander Smith, Carmel Crimmens and Richard Boleyn

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