Page 111 - RusRPTAug22

S&P CC 17/03/22
Following sanctions on professional services introduced in April the main ratings have all suspending their ratings for Russia which has an NR rating from all three of the big agencies. The last ratings were issued in March shortly after the war started and put Russia on “near default” across the board.
Russia has yet to actually default, but it is widely anticipated that will in July. The US Treasury Department Office of Foreign Assets Control (OFAC)
allowed the General License 9A expire on May 25 that allowed US banks to accept payments in dollars. Russia has said that it can and is willing to meet its obligations and will offer rubles if it can’t pay in dollars.
The issue will come to a head with a coupon payment on a $159mn bond due on June 24 that can only be paid in dollars, according to the covenant. Russia will offer rubles which is a technical breach and will put the bond into default. Russia then has 30 days grace to make good the payment, but unless the OFAC issues a special exemption – highly unlikely – the bond will go into default a month later in July.
That could trigger cross-defaults on numerous other bonds entitling their holders to demand immediate redemption. Russia is almost certain to claim a force majeure as it has the money and is offering to send it and start a legal case. Bondholders then have the option of also going to court and trying to seize Russian assets in Europe to get their money back. The obvious source of funds is the $300bn of CBR frozen reserves, which technically still belong to Russia. Once started the legal wrangling could go on for years, if not decades.
An interesting twist is that the Kremlin may offer these bond holders to settle in rubles, meeting the full value of the principle plus interest and some investors will be tempted to take the deal as other wise they may never get their money back.
8.5 Fixed income
Russia sets up “I” accounts. President Putin signed Decree No. 394 on June 22nd, establishing the new mechanism for settlements under the sovereign bonds of the Russian Federation denominated in foreign currency (Eurobonds). The new procedure authorizes the issuer of Eurobonds to make payments to a special type “I” account opened in the name of foreign depository institutions, such as Euroclear, at the Russian National Settlement
111 RUSSIA Country Report October 2020
www.intellinews.com