Page 118 - RusRPTApr24

8.5 Fixed income
The share of non-resident holders of Russian Finance Ministry’s OFZ treasury bills fell again in February to 7.2%, or RUB1.4 trillion, of the total outstanding bonds worth RUB20.1 trillion ($217bn), as Russia’s state-owned banks continue to take up the slack.
Russian OFZ paid a high interest rate of around 6%-7% pre-war, giving investors a decent return with low risk thanks to Russia’s rock-solid macroeconomic fundamentals, while interest rates of other major economies were close to zero as they battled rising global inflation. The yields on OFZ have grown substantially since then making borrowing costs much higher: bonds with a 20-year maturity carried yields of around 14% per year as of March 27.
International investors' share of the OFZ market peaked in February 2020 reaching 34.9% of bonds worth RUB3.2 trillion from a market worth RUB9.1 trillion.
That all changed following Russia’s invasion of Ukraine just over two years ago when international investors fled the market if they could. Now only foreign investors from friendly countries are investing into the Russian T-bill market and hold half the value of bonds compared to the previous peak three years ago.
VTB Bank has declared the initiation of replacement bond placements starting March 25, encompassing all three of its remaining Eurobond issues (CH0248531110, XS0223715920, XS0810596832). This exchange will also facilitate the transfer of claim rights, accommodating investors amidst ongoing Euroclear settlement impediments since spring 2022, which have obstructed external payments for the bank's Eurobonds. Additionally, since June 2022, no coupon payments have been made on perpetual bonds, reflecting internal financial constraints.
The exchange process for the dollar-denominated perpetual bond (ISIN XS0810596832/ US91834KAA43, valued at $2.25 billion) extends an application deadline until May 2, offering a significantly longer period for document collection than the standard 1.5 to 2 weeks typically seen in replacement bond exchanges. The exchange will be conducted in the local over-the-counter market, with settlements scheduled for May 17. Despite the ongoing policy of suspending coupon payments on the exchanged Eurobonds, VTB plans to accrue and disburse coupon payments for the newly issued replacement bonds by June 2024. It is also indicated that following the placement, any remaining Eurobond obligations might be transferred to a Special Purpose Vehicle (SPV) for settlements with 'unfriendly' counterparts, akin to practices observed in Sovcombank, as per Federal Law 292 dated July 14, 2022.
118 RUSSIA Country Report April 2024 www.intellinews.com