Either take it or leave it. The Russian Ministry of Finance has for the first time paid a debt in rubles instead of paying with the originally agreed currencies and has transferred them to a financial institution subject to sanctions for the offensive on Ukraine. If your creditors want to recover the money, they will have to open an account there and waive any future litigation as well. “The obligations of the Government of the Russian Federation have been fulfilled by the Ministry of Finance in full,” the agency announced in a statement. Specifically, Moscow has transferred 12,510 million rubles, about 223 million euros, to the Russian National Settlement Deposit, an intermediary entity that was sanctioned by the European Union at the beginning of June, so it will not be able to operate with these sums with European banks. Specifically, Moscow considers paid two separate tranches of bonds that mature in 2027 and 2047.
The payment assumes that an exchange rate of one euro for 56 rubles has been established. The official scale has a trick: the restrictions on the movement of capital imposed by the authorities, the sanctions and the collapse of imports, with the consequent collapse in the demand for foreign currency, have made it a pain to get euros and dollars in Russia. head. For example, it is forbidden to withdraw from the bank the euros that have entered after March 9.
It is the first time that the mechanism approved by President Vladimir Putin on June 22 has come into operation to change the payment of the debt to rubles. The document considers any dispute settled “if an amount equivalent to the value of the obligations in foreign currency is paid in rubles.”
“This is not a suspension of payments,” said Economy Minister Antón Siluanov. According to the Interfax news agency, the senior official has blamed this “force majeure” measure on the West and the restrictions imposed on Russian banks as punishment for the attack that began on February 24. “Our foreign counterparts refuse to pay in foreign currencies, which is a force majeure event for us. For this reason, we are switching to ruble payments,” the minister added.
Russia denies suspending payments
Siluanov denounced that Russia has not been able to use the 630,000 million dollars it had in foreign currency and other funds abroad before the offensive because they have been frozen. “The creation of these artificial barriers to the payment of the Russian foreign debt was necessary to hang the label of default (suspension of payments). You can say anything and try to put that label, but whoever understands knows that this is not a default”, he added.
The minister stated that the objective is to “protect” creditors. Three different groups are established there; two of them that have in common that they operate with Russian depositories, and a third are debt holders that cannot collect due to the enormous restrictions that have hit Russian banks. The latter will have to open a special account “and submit, together with the package of documents, a written waiver of all possible future claims.” These special accounts may only be opened in the Russian National Settlement Depository, where the nominal value of the Eurobonds will be linked to the ruble price on the Russian Stock Exchange at the time of settlement of accounts.
That financial institution was sanctioned by Brussels on June 3 along with 17 entities and 65 more individuals for the aggression against Ukraine, including several soldiers who allegedly participated in the Bucha massacre. “Today we add to this list those responsible for allowing this unjustified war and the crimes committed in Bucha and Mariúpol,” said Josep Borrell, High Representative of the European Union for Foreign Affairs and Security Policy, in a statement released by the Commission. European.
Rejection from some EU countries
The National Settlement Deposit had been appointed on June 2 as the substitute for Citibank when it comes to mediating the payment of Eurobonds. The US entity had received a special license to carry out this work in the first months of the conflict, but the margin given by Washington to the Kremlin to avoid default It expired at the end of May. However, the Russian agency was sanctioned a day later, and with it stopped operating in euros.
However, their problems already dated back to March, a few days after the bombing began in Ukraine. All the deposit’s operations with foreigners were paralyzed on the European platforms Euroclear and Clearstream, which stopped accepting the ruble as a settlement currency, and its membership of the European Association of Securities Depositories was suspended.
“The old confidence in the Western financial infrastructure no longer exists,” said Siluanov, who has repeated a Kremlin mantra of these months: the rest of the world’s distrust of the dollar and the euro will make them cease to be reference currencies. Last week, the Russian president stated at the International Economic Forum in St. Petersburg that he predicted that both currencies will sink soon.
The mechanism for the payment of Eurobonds is similar to the one that Putin decreed for Europe for gas. Gazprom’s banking subsidiary, Gazprombank, opens accounts for foreign gas companies so that they can deposit euros or dollars there, and the entity exchanges them for rubles before transferring the money to its parent company. However, countries such as Poland, Bulgaria and Finland have refused to abide by this measure because they consider that it would leave them in legal limbo in the face of future litigation.