Russia has stepped up its economic retaliation with a Eurobond ruble buyback offer

This picture taken on October 26, 2018 shows a view of the Russian ruble coins. Picture taken on October 26, 2018. REUTERS / Maxim Shemetov

LONDON, March 29 (Reuters) – Russia on Tuesday retaliated in what became known as the “economic war” with the West and offered to repatriate $ 2 billion in eurobonds in rubles instead of dollars, which will mature next month.

The Ministry of Finance on Eurobonds, which will mature on April 4 as Russia’s largest debt this year, is following Western moves to tighten sanctions against the country over its invasion of Ukraine and to free Moscow from international funding.

Moscow calls its operations in Ukraine a “special military operation” and calls Western operations an “economic war.” In response, it has already demanded that foreign companies pay for Russian gas in rubles rather than dollars or euros. read more

It is not immediately clear whether the bondholders will be forced to accept the rubles if they turn down the offer, which would break the terms of the bond and re-emerge as Russia’s first foreign sovereign in a century.

Lenders said they now aim to help Russian holders who face restrictions on receiving dollar payments.

“This is a tender offer and the final decision on whether these bonds will be paid in rubles. Perhaps, the Russian authorities want to measure the willingness of investors to accept payments in rubles?” Seabort Global Credit Analyst Himanshu Borwal said.

Tim Ash, of Blu-ray Asset Management, a non-bondholder, said the move was part of a fight by Russia’s central bank and finance ministry to “prevent default and stabilize markets and the ruble.”

Ash said the US Office of Foreign Assets Control (OFAC), which enforces US sanctions, should “make it clear” that the deadline for US individuals or companies to receive payments on Russian sovereign securities will not be extended until May 25.

Russia’s Ministry of Finance said in a statement on Tuesday that securities must be submitted to the National Settlement Depository between 1300 GMT on March 29 and 1400 GMT on March 30.

Ensuring payment

It said the eurobonds would be bought at a price equivalent to 100% of their nominal value.

A finance manager said the ministry’s offer could be designed to help Russian investors make payments, as EuroClear, an international settlement body, is blocking dollar payments to the Russian settlement system.

“Everyone wants dollars now – inside and outside Russia – so I think only local holders and local banks with sanctions will use this process,” said Kaan Nazli, Neuberger Berman’s portfolio manager. Exposure to Russian Sovereign Debt.

Nusli said he had not seen a reversal in the repurchase currency, adding that the ruble was “no longer a convertible currency” and would not be of interest to foreign investors.

The ruble initially collapsed after Western countries imposed sanctions, depreciating by 40% against the dollar from the start of 2022. Since then it has recovered and is down about 10% in Moscow on Tuesday.

The Ministry of Finance did not provide for the breakdown of foreign and Russian holders of Eurobond-2022. It did not respond to requests for comment on how much of the $ 2 billion it would like to repurchase or what would happen if investors refused the offer.

JPMorgan said the bond has a 30-day grace period and there are no provisions for payment in alternative currencies.

According to the Refinitiv database eMAXX, which analyzes public filings, key asset managers such as Brandywine, Axa, Morgan Stanley Investment Management, and BlackRock were among the most recent holders of the April 4 bond.

The finance ministry said on Tuesday it had paid $ 102 million in full coupons to Russia’s eurobond by 2035, its third payment since Western sanctions called into question Moscow’s ability to repay foreign currency.

Repayment of Russia’s sovereign debt has so far failed, although sanctions have frozen part of Moscow’s largest foreign reserves. If there was any problem with the payment by the Russian authorities, it led to a formal default declaration, which would be artificial default.

Russia’s next payment is due March 31 at $ 447 million. On April 4, it will pay $ 84 million in $ 2042 sovereign securities. read more

Report by Reuters; Written by Edmund Blair; Editing by Alexander Smith and Carmel Grimins

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