Russia makes first Eurobonds-for-rubles payment

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Russia fulfilled Thursday its Eurobonds obligations using a new mechanism that enables it to transfer payments in rubles. The termination of Eurobond payouts in foreign currency and the transition to payment in the Russian currency does not automatically mean international debt default, Finance Minister Anton Siluanov stressed.

Siluanov underlined that creditors had no grounds to think that his country was not performing its commitments properly.

The United States had refused to renew last month Moscow's license that allowed the Russian federation to service Russian external debt in foreign currency. Later on, in early June, the National Settlement Depository (NSD) was affected by the restrictive measures taken by the European Union, prompting Russia to opt for a new mechanism.

In response, State Duma Speaker Vyacheslav Volodin announced that Moscow would make its foreign debt payments in rubles.

Citing Moscow's previous experience in asking for gas payments to be paid in rubles, Volodin said on his Telegram channel "The US and the satellites supporting Washington’s decisions should get used to the ruble."

Days later, Russian Deputy Prime Minister Alexander Novak told reporters on the sidelines of the St. Petersburg International Economic Forum that the majority of Gazprom's European clients have switched to paying for gas in rubles, accounting for 90-95% of supplied volumes (SPIEF).

The new mechanism, which passed Russian President Vladimir Putin's desk on June 22, grants Russia the ability to fulfill its obligations to creditors whose rights are confirmed through the national depositories, while also fulfilling its obligations to those "who cannot transfer funds under standard procedures," the Finance Ministry explained.

Putin had signed on Wednesday a decree that allowed for a temporary procedure to allow Moscow to make its Eurobonds payments. The bill says that Russia's obligations would be considered complete "if they are fulfilled in rubles in an amount equivalent to the value of obligations in foreign currency" at the exchange rate on the day the funds are transferred to the NSD, which will then take them to creditors.

For Russia to fulfill its obligations in rubles, the funds will be transferred in the currency to special accounts and adjusted in accordance with the current exchange rate until the settlement is realized.

Holders of the securities will be required to confirm their right to receive the payment while also relinquishing any potential claims against Moscow in writing, and the transfer will require the creditors to have a "personal" ruble account in a Russian bank authorized by the government. The list of authorized Russian banks will be issued by the government by the end of next week.

The finance ministry announced Thursday that it had made the first payment under the new rules, transferring 12.51 billion rubles ($234.85 million) to the NSD for the bank to pay on bonds maturing in 2027 and 2047.

The currency change is not an indication of Moscow declaring a default on external debt, and Russia only embarked on this path due to the refusal of foreign states to process payments in foreign currency, Siluanov noted.

However, the minister said, Russia taking on a new payment mechanism does not necessarily mean that the West will consider that Moscow fulfilled its obligations, as the United States and the European Union are planning on further cornering Russia and imposing more obstacles on it in order to portray it as a state that defaulted to international debt. "But everyone who is versed understands that this is not a default at all."

Russia has repeatedly underlined that it had enough money, and as of April 1, 2022, Russia's external public debt amounted to $57.143 billion, while as of June 10, 2022, its international reserves amounted to $549.6 billion.