Russia is developing a new bond-payment system designed to bypass US sanctions and allow it to pay creditors, as a grace period on due payments is ticking down.
Finance Minister Anton Siluanov said in an interview with the Vedomosti newspaper that under the proposal, Foreign investors will be allowed to open Russian bank accounts and hold both Rubles and hard currency. Unlike before, investors will be allowed to access their funds without any restrictions.
Russia is once again technically in a default countdown, as so far about $100 million in both Euros and Dollars has yet to make it to foreign investor’s accounts as of Friday. That has triggered a 30 day grace period until it is officially in default.
Last week the US Treasury allowed a sanctions loophole to expire, which barred all US banks and individuals from accepting any bond payments from the Russian government.
In June a new round of payments worth roughly $400 million will come due and will occur, “outside Western financial infrastructure,” according to Finance Minister Anton Siluanov.
Siluanov continued, “This is how it works for gas payments: we get foreign currency, then it is converted to rubles. The Eurobond settlement mechanism will operate in the same way, but in the opposite direction.”
Alexander Dmitrenko, a partner at Ashurst LLP said, “Unlike gas supplies, getting bond interest payments might not be so critical in most cases. So on the balance of pros and cons, holders might take a more conservative approach.”
The plan is still being formulated by the government and is expected to be ready and presented before the next round of coupons on June 23-24.
The June 23 payments have a clause which allows payments in euros, pounds sterling or Swiss francs. On the 24th a payment will come due which must be paid in dollars through a unit of J.P. Morgan.
Alexey Tretyakov, a portfolio manager at Aricapital in Moscow said, “I doubt it will work — for most foreign investors, the procedure for opening an account with a Russian bank may be too difficult. Only the largest institutional investors can cope. But they may face reputation risks and risks of sanctions violations when dealing with Russian counterparts.”
