Home Business amount Russia steps up economic retaliation with offer to buy Eurobond ruble

Russia steps up economic retaliation with offer to buy Eurobond ruble

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A view shows Russian ruble coins in this illustration taken October 26, 2018. Picture taken October 26, 2018. REUTERS/Maxim Shemetov

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  • Eurobond ruble payment offer reignites default fears
  • Moscow does not say whether bondholders should take rubles
  • Russia has already demanded gas payments in rubles
  • The move may help residents facing dollar payment restrictions

LONDON, March 29 (Reuters) – Russia retaliated on Tuesday to what it called an “economic war” with the West by offering to buy back its $2 billion Eurobonds due next month in rubles rather than dollars.

The Finance Ministry’s bid for Eurobonds maturing on April 4, Russia’s biggest debt payment this year, follows Western moves to toughen sanctions on the country following its invasion of Russia. Ukraine and to freeze Moscow from international finance.

Moscow, which calls its actions in Ukraine a “special military operation”, said the Western measures amounted to “economic warfare”. In response, he has already asked foreign companies to pay for Russian gas in rubles rather than dollars or euros. Read more

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It was not immediately clear whether bondholders would be forced to accept rubles if they rejected the offer, a move that would break the terms of the bond and again raise the prospect of the first external sovereign default by Russia in a century.

Creditors said it could be aimed at helping Russian holders who now face restrictions on receiving dollar payments.

“This is a tender offer and not a final decision that these bonds will be paid in rubles. Perhaps the Russian authorities want to assess 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 was part of a response by Russia’s central bank and finance ministry “to avoid defaults and stabilize the markets and the rouble”.

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

Russia’s Finance Ministry said in its statement on Tuesday that bondholders should submit requests to sell their holdings to the National Settlement Depository between 1:00 p.m. GMT on March 29 and 2:00 p.m. GMT on March 30.

SECURE PAYMENT

Eurobonds would be bought at a price equivalent to 100% of their face value, he said.

A fund manager said the ministry’s offer could be designed to help Russian investors secure their payments because Euroclear, an international settlement system, had blocked dollar payments to the Russian clearing system.

“Everyone wants dollars right now – inside and outside Russia – so I guess only local holders and local banks that have problems with sanctions will use this operation,” he said. Kaan Nazli, portfolio manager at Neuberger Berman, which recently reduced its exposure to Russian sovereign debt.

Nazli, who said he had never seen a buyout that changed the redemption currency, added that foreign investors were unlikely to be interested given that the ruble ‘is no longer a convertible currency’ .

The ruble first crashed after the West imposed sanctions, plunging up to 40% in value against the dollar since the start of 2022. It has since recovered and was trading around 10% in Moscow on Tuesday.

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

The bond has a 30-day grace period and no provision for alternate currency payments, JPMorgan said.

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

The Finance Ministry said earlier on Tuesday that it had fully paid a $102 million coupon on Russia’s Eurobond due in 2035, its third payment since Western sanctions challenged Moscow’s ability to deliver. service of its foreign currency debt.

Repayments of Russian sovereign debt have so far been made, avoiding a default, although the sanctions have frozen some of Moscow’s huge foreign exchange reserves. Russian officials have said any payment issues that result in a formal declaration of default would be an artificial default.

Russia’s next payment will be on March 31, when a payment of $447 million will fall due. On April 4, it is also expected to pay $84 million in coupon for a 2042 dollar sovereign bond. Read more

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Reuters reporting; Written by Edmund Blair; Editing by Alexander Smith and Carmel Crimmins

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