On the Day of $2B Payment, Russia Launched Eurobond Offer

Analysts believe Russia has offered to buy back dollar bonds expiring next week in rubles; this should alleviate the country’s hard-currency repayment load; moreover, it will allow local investors of the $2 billion sovereign issue to get payment.

The offer by Russia’s finance ministry on Eurobonds due on April 4, the country’s largest debt payment this year, comes in the wake of Western measures to strengthen sanctions against the country over its invasion of Ukraine and to cut Moscow off from international financing. Moscow, which refers to its efforts in Ukraine as a “special military operation,” accuses the West of waging “economic war.”

As a result, it has enacted remedies, requiring foreign companies to pay for Russian gas in rubles rather than dollars or euros. Moreover, the bonds were issued in 2012. They will be purchased at a price equal to 100 percent of their nominal value. In fact, the ministry’s statement revealed this data. When the bond matures on April 4, the total amount of the outstanding bond will be reduced due to the bond buyback.

Russia’s Effort to Preventing Default

The bond’s provisions stipulate that repayment should be in U.S. dollars. Repaying in roubles at maturity additionally might reopen the door to Russia’s first external sovereign default in a century.

Analysts and investors believe the decision will benefit Russian holders who can now not receive dollar payments. According to Tim Ash of BlueBay Asset Management, the action is part of a fightback by Russia’s central bank and finance ministry “to stave off default and stabilize markets and the ruble.”

The Office of Foreign Assets Control (OFAC), which implements U.S. sanctions, “should make clear” that the May 25 deadline for U.S. people and businesses to receive payments on Russian government bonds will not extend, according to Ash.

According to a fund manager, the ministry’s offer might assist Russian investors in obtaining payment since Euroclear, an international settlement system, has been preventing dollar transfers to the Russian clearing system. “Everyone wants dollars right now – in and outside Russia,” said Kaan Nazli. He works as a portfolio manager at Neuberger Berman, which recently decreased its exposure to Russian state debt.

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