‘Still Many Questions:’ Investors on Russia’s Latest Debt Rule

Selcuk Gokoluk

07 Mar 2022, 06:33 PM IST

(Bloomberg) -- Bondholders are scrambling to understand new policy from the Russian government about paying debt.

A decree from Moscow over the weekend authorized Russia’s government and companies to pay foreign creditors in rubles on securities, including those denominated in other currencies. But its still unclear whether foreign investors will be able to actually receive the payments given the newly imposed sanctions and moves by clearing houses to stop accepting ruble as settlement currency.

Here are some highlights from investors and money managers:

Sergey Dergachev, senior portfolio manager and head of emerging market corporate debt at Union Investment Privatfonds in Frankfurt

“The good point is that Russian sovereign and Russian corporates can pay foreign debt. It will be to a special ruble account with NDC (Russian National Depository Center -- Russian clearing house), but the obligation to pay from Russia’s sovereign and corporate side is fulfilled.
But, the question is, how will it be treated by ratings agencies? How will it technically be transferred to investors?
The second positive aspect from the decree I have read is that this measure is explicitly stated as temporary and there is also some room for some exemptions (which need approval from the central bank or the ministry of finance). There are still many questions marks open on the decree and its technical implementation.”

Rodica Glavan, head of EM corporate fixed income at Insight Investment Management in London

“Basically it’s a way to go around capital controls, but we need to know how investors will set up local accounts to be paid in rubles. Euroclear stopped accepting the ruble as settlement, so foreigners will have to set up local accounts to be paid in the ruble, but we are yet to see how that works
The big test will be the sovereign coupon payments on March 16. We have two corporates - Rosneft and Gazprom, so we are waiting to find out whether they will pay and how: lots of uncertainty on all levels.”

Omotunde Lawal, head of emerging-market corporate debt at Barings in London

“We are just trying to figure out what it means. We are not sure if legally it is a default if they did pay, but just in a different currency. It might be one for lawyers to advise.”