Page 53 - RusRPTJul22

payment was made on June 23 for Eurobonds maturing in 2027 and 2047. The international community has rejected this scheme.
Bondholders who have not been paid are now free to take Russia to court and to seize Russian assets abroad as compensation. Currently the west has frozen some $300bn of the central bank’s reserves that is an obvious target. However, as the West is not officially at war with Russia, technically these reserves still belong to Russia and cannot be seized by western governments, but the courts could rule that this money is available to compensate bond investors.
Russia’s last sovereign default occurred in 1998, during the nation’s financial collapse and ruble devaluation. There has been a lot of confusion on when the last default occurred with some outlets reporting this is the first default on international debt since the Bolsheviks walked out on Russia’s sovereign debt in 1918, following the October revolution.
However, while the bulk of the default during the 1998 crisis was domestic GKOs (the precursor to the Russian Finance Ministry’s OFZ treasury bills) there were some dollar denominated debt issued by state-owned Vnesheconombank included in that restructuring. In addition Russia restructured some of its Soviet era debt in 1997 held by Western banks included in the so-called London Club debt.
That was technically the obligation of Vnesheconombank rather than the Russian Federation, which was at the time the official payment agent of the state. Vnesheconombank (now known as VEB and re-tasked as the state development bank) had a special status at the time as it is not part of the banking sector, nor under the supervision of the Central Bank of Russia (CBR), but has the status of bank due to a special presidential decree. It was the official payment agent for Russia’s international debt, but under the leadership of Andrei Kostin, now the CEO of VTB Bank, increasingly carried out commercial banking operations. Since then the bank has been re-tasked again under Igor Shuvalov and is in charge of major infrastructure investments that make up a third of the 12 National Projects investment plan.
In May 1999 the government also defaulted on a Soviet-era dollar bond, known as the MinFin III that was domestically issued, but was widely held by foreign investors.
According to Lee Buchheit and Elena Daly, sovereign debt lawyers who provided advice to Russia during its 1990s restructuring, while the country did restructure some of its debt then, that didn’t include its Eurobonds at the time, Bloomberg reports. “MinFins, while denominated in dollars, were governed by Russian law and therefore could be viewed as internal debt,” they said.
53 RUSSIA Country Report October 2020 www.intellinews.com