VTB was the first after the Ministry of Finance to pay off foreign currency debt in rubles

VTB Bank paid the coupon on Eurobonds in rubles, dividing it into two tranches - the part that was due to investors from countries unfriendly to Russia turned out to be blocked.Previously, the Ministry of Finance applied a similar scheme for paying debts.

VTB was the first Russian corporate issuer to settle foreign currency Eurobonds under a new scheme - with the division of payments to residents and non-residents, Dmitry Pyanov, member of the board of the state bank, said at a briefing. According to him, the transfer of interest on the dollar issue of Eurobonds in the amount of $52 million took place on April 15 in rubles at the rate of the Bank of Russia. In addition to coupon conversion, the bank divided settlements with paper holders into two tranches - so VTB, which fell under US blocking sanctions at the end of February , was able to separately settle accounts with investors from Russia and friendly countries.

How sanctions and counter-sanctions affected the settlement procedure for Russian debts

The blocking sanctions of the United States and other Western countries imply that companies and individuals who fall under them cannot make any payments in the currencies of these states. In addition, on March 5, President Vladimir Putin signed a decree establishing a new procedure for repaying liabilities in excess of 10 million rubles. before creditors from unfriendly countries (now there are 48 countries on the list). To such creditors, Russian companies must make payments on foreign exchange obligations in rubles at the official exchange rate of the Central Bank with the transfer of funds to special type C accounts.

It is difficult to write off the money received for non-residents from unfriendly countries - it is not yet possible to withdraw these funds from Russia, and it is possible to convert them into foreign currency only with the permission of a special subcommittee of the Ministry of Finance. On April 6, the Ministry of Finance itself for the first time transferred coupons for $649.2 million on sovereign dollar eurobonds in rubles. On April 12, the relevant government commission proposed that issuers settle on foreign currency Eurobonds separately - with residents, who are not subject to any restrictions, and non-residents.

What schemes will be possible for ruble payments on currency bonds Pro

VTB applied this mechanism, having received permission from the Central Bank, Pyanov said: “One tranche was calculated based on information from our settlement depository in an amount corresponding to payments intended for residents of the Russian Federation or residents of friendly countries. They received this payment in rubles. They accounted for the equivalent of $27 million. The remaining $25 million of the payment fell on residents of unfriendly countries.” He clarified that those investors who were due the second tranche "received this payment blocked."

“According to the logic of the presidential decree, they must apply to their states for the release of the assets of the Russian Federation, if these states release these funds, then they can qualify for a coupon payment,” said a top manager at VTB.

He stressed that in the future the state bank plans to settle accounts with holders of "old" issues of Eurobonds in this way. We are talking about three issues of eurobonds in dollars and one more in Swiss francs, placed before VTB fell under the US and EU sectoral sanctions in 2014. By the end of this year, the bank will have to transfer three coupons to holders of these securities - for $107 million and less than $1 million in June and 14 million Swiss francs in October.

“For all these issues, we will apply the payment in rubles at the rate of the Central Bank on the corresponding payment date with a payment blocking, which is intended for residents of unfriendly countries,” Pyanov commented.

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Even before the creation of the settlement scheme for Russian issuers on foreign currency debts in rubles, the international rating agency Fitch reported that the conversion of payments into another currency would be regarded as a default. VTB did not explain whether the bank has concerns that some Eurobond holders will perceive the coupon payment in rubles, followed by blocking, as a default on the debt.

“We made payments in the currency that was available to us, and using the financial infrastructure that is available to us, in accordance with the regulation to which we are subject,” Pyanov emphasized.

Earlier, major Russian banks warned investors about problems with payments on Eurobonds due to sanctions and restrictions on payments. On April 7, Sovcombank, which also fell under US blocking sanctions, announced that it would not yet be able to make settlements on four issues of Eurobonds worth $1.2 billion, although it would continue to accrue interest on two of them. On April 20, the Russian Agricultural Bank, which is under British sanctions, admitted that it could not pay a coupon on one issue for $ 21 million. The bank explained that this happened because the paying agent for the issue, the London branch of the Bank of New York Mellon, did not confirm its readiness to accept payment and transfer money to holders through depositaries until clarified by the UK authorities.