Russia avoids default on Sovereign Eurobonds

RUSSIA ECONOMICS - In Brief 17 Mar 2022 by Alexander Kudrin

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Yesterday the Finance Ministry had to pay down coupons on two issues of Sovereign Eurobonds with maturity in 2023 and 2043 worth $117 mln in aggregate. It sent a correspondent order to paying agent on Monday, but it was not clear whether it will be executed or not given the “freeze” of accounts of both CBR and Minfin in almost all major currencies. The latter was done even at the end of February as a key element of the sanctions package. However, on March 2 OFAC updated its license, which permitted all the regular payments, including interest and principal redemption. Hence, from the technical point of view, the payment became possible, but investors were afraid that some problems may appear on the level of paying agent. According to the statement of the Finance Ministry, the payment instruction was executed. Hence the technical delay in the delivery of money to investors may take only several days. On the back of this event prices for Sovereign Eurobonds rallied, but still traded at distressed levels for maturities beyond 2022.To remind, the existing license by OFAC allows such operations until May 25, which means that all interest payments on Sovereigns as well as redemption of Russia-22 (scheduled on Apr 4) are likely to be executed in full with minor technical delays. The situation beyond this date is unclear. In case of similar restrictions, which were provided in relation to Rusal securities in 2018, the license was extended several times. Given the high presence of international investors in Russian Sovereigns (about 50% of the total amount) probability of this scenario is reasonably high, but some unexpected swings in the geopolitical situation may change every...