The President of the Russian Federation has signed a decree on changing the procedure for the fulfillment of obligations under Eurobonds of the Russian Ministry of Finance, which will mature on September 16, 2023.
A special procedure for the fulfilment of obligations under Eurobonds was established back in the summer of 2022 and provided for the opening of ruble accounts of “I”-type in Russian banks in the name of foreign depositaries. The holders of Eurobonds were recognized as beneficiaries of these accounts. Payments on government debt to non-residents were transferred there, while the possibility of foreign currency payments from these accounts was not envisaged.
Now the regime of “I”–accounts is changing. The Ministry of Finance and the Central Bank of the Russian Federation have worked out a scheme according to which from December 15, 2023 the funds from these accounts will be used for payments to Russian investors whose income on foreign securities turned out to be frozen on foreign accounts of the National Settlement Depository (NSD).
Payments to holders of Eurobonds
If Eurobonds are registered by Russian depositories, investors will continue to receive payments from “I”–type accounts in roubles at the Central Bank of Russia's exchange rate. The changes will affect those investors whose rights to these securities are accounted for by foreign depositories.
The Ministry of Finance of the Russian Federation will continue to transfer Eurobond proceeds to the accounts of the Russian central depository (i.e., NSD), which, in turn, will continue to make payments to foreign holders. They will be able to receive payments from the “I”–type accounts in rubles within 90 days from the date of the next Eurobond payment.
Thus, payments from “I”–type accounts will be made at the exchange rate of the domestic currency market until November 24, 2023 inclusive, and the funds credited to these accounts until September 15, 2023 will be indexed. In the period from November 25 to December 14 of this year, payments will be suspended, and the funds credited to the “I”–type accounts from September 16, 2023 will be indexed at the CBRF exchange rate on the 91st day after the date of the next Eurobond payment.
Starting from December 15, 2023, income on Eurobonds will be paid to non-residents in foreign currency. This will be done using blocked funds in the foreign accounts of the National Settlement Depository by transferring information on holders of Russian Eurobonds and the amounts due to them to foreign depositories. Upon submission of the relevant order, NSD will be deemed to have duly fulfilled its obligations to transfer payments to non-resident holders of Eurobonds.
It should be understood that under the European sanctions foreign depositories, such as Euroclear and Clearstream, are not entitled to make payments from „frozen” foreign accounts of the National Settlement Depository, at least until the relevant regulatory approvals are issued.
What about Russian “frozen” assets?
After December 15, 2023, the funds transferred by the Ministry of Finance of the Russian Federation to "“I”–type accounts in favour of foreign holders of Eurobonds will be used for payments in rubles to Russian owners of assets blocked abroad.
Russian owners of foreign securities will receive the money in the following order:
Peer obligations will be fulfilled in the calendar priority, and in case of insufficiency of funds on “I”–type accounts their partial fulfilment in proportion to the number of securities is envisaged.
Thus, there will be a kind of forced exchange of “frozen” Russian assets abroad for funds from “I”–type accounts belonging to non-residents.
Russian mass media have earlier reported on the development of projects for the exchange of blocked assets of Russian and foreign investors, but initially it was about the use of non-residents' funds on “C”–type accounts.
Source: Decree of the President of the Russian Federation No. 665 from 09.09.2023 “On the Temporary Procedure for the Execution to Residents and Foreign Creditors of State Debt Obligations of the Russian Federation Expressed in State Securities, the Nominal Value of Which is Specified in Foreign Currency, and Other Obligations on Foreign Securities”
A special procedure for the fulfilment of obligations under Eurobonds was established back in the summer of 2022 and provided for the opening of ruble accounts of “I”-type in Russian banks in the name of foreign depositaries. The holders of Eurobonds were recognized as beneficiaries of these accounts. Payments on government debt to non-residents were transferred there, while the possibility of foreign currency payments from these accounts was not envisaged.
Now the regime of “I”–accounts is changing. The Ministry of Finance and the Central Bank of the Russian Federation have worked out a scheme according to which from December 15, 2023 the funds from these accounts will be used for payments to Russian investors whose income on foreign securities turned out to be frozen on foreign accounts of the National Settlement Depository (NSD).
Payments to holders of Eurobonds
If Eurobonds are registered by Russian depositories, investors will continue to receive payments from “I”–type accounts in roubles at the Central Bank of Russia's exchange rate. The changes will affect those investors whose rights to these securities are accounted for by foreign depositories.
The Ministry of Finance of the Russian Federation will continue to transfer Eurobond proceeds to the accounts of the Russian central depository (i.e., NSD), which, in turn, will continue to make payments to foreign holders. They will be able to receive payments from the “I”–type accounts in rubles within 90 days from the date of the next Eurobond payment.
Thus, payments from “I”–type accounts will be made at the exchange rate of the domestic currency market until November 24, 2023 inclusive, and the funds credited to these accounts until September 15, 2023 will be indexed. In the period from November 25 to December 14 of this year, payments will be suspended, and the funds credited to the “I”–type accounts from September 16, 2023 will be indexed at the CBRF exchange rate on the 91st day after the date of the next Eurobond payment.
Starting from December 15, 2023, income on Eurobonds will be paid to non-residents in foreign currency. This will be done using blocked funds in the foreign accounts of the National Settlement Depository by transferring information on holders of Russian Eurobonds and the amounts due to them to foreign depositories. Upon submission of the relevant order, NSD will be deemed to have duly fulfilled its obligations to transfer payments to non-resident holders of Eurobonds.
It should be understood that under the European sanctions foreign depositories, such as Euroclear and Clearstream, are not entitled to make payments from „frozen” foreign accounts of the National Settlement Depository, at least until the relevant regulatory approvals are issued.
What about Russian “frozen” assets?
After December 15, 2023, the funds transferred by the Ministry of Finance of the Russian Federation to "“I”–type accounts in favour of foreign holders of Eurobonds will be used for payments in rubles to Russian owners of assets blocked abroad.
Russian owners of foreign securities will receive the money in the following order:
- First, payments will be made on stocks of foreign issuers and foreign securities certifying rights to such stocks in favour of individuals and management companies of open-end and exchange-traded unit investment funds.
- Then payments on foreign bonds and Eurobonds of the Russian Federation will be transferred to individuals;
- Payments on stocks of foreign issuers and foreign securities certifying rights to such stocks will then be received by other owners (except for individuals and management companies of unit investment funds that received cash in the first turn);
- Other obligations of NSD to its customers will be discharged in the fourth priority;
- Finally, other persons (except for individuals who received funds in the second turn) will receive income on foreign bonds and Eurobonds of the Russian Federation.
Peer obligations will be fulfilled in the calendar priority, and in case of insufficiency of funds on “I”–type accounts their partial fulfilment in proportion to the number of securities is envisaged.
Thus, there will be a kind of forced exchange of “frozen” Russian assets abroad for funds from “I”–type accounts belonging to non-residents.
Russian mass media have earlier reported on the development of projects for the exchange of blocked assets of Russian and foreign investors, but initially it was about the use of non-residents' funds on “C”–type accounts.
Source: Decree of the President of the Russian Federation No. 665 from 09.09.2023 “On the Temporary Procedure for the Execution to Residents and Foreign Creditors of State Debt Obligations of the Russian Federation Expressed in State Securities, the Nominal Value of Which is Specified in Foreign Currency, and Other Obligations on Foreign Securities”