10.09.2024, 22:15
The procedure for servicing Eurobonds in the Russian Federation with an unfriendly trace in the chain has been clarified
Source: OREANDA-NEWS
OREANDA-NEWS The procedure for servicing and accounting for Eurobonds, in the chain of ownership of which there were unfriendly non-residents, has been clarified again, and replacement bonds will also fall under regulation.
On Monday, Decree of the President of the Russian Federation No. 767 was signed and published, amending Decrees No. 95 and No. 138, which regulate the procedure for payments on Eurobonds of Russian borrowers and the separation of these securities under certain conditions.
"Decree No. 767 is aimed at suppressing the use of schemes to circumvent the requirements established by anti-sanctions regulation for transactions (operations) with securities in the chain of ownership of which unfriendly non-residents were, as well as to fulfill obligations under such financial instruments. In particular, the decree clarifies the requirements for fulfilling obligations to friendly persons, residents and CFC. If there were unfriendly persons in the chain of ownership of their assets, then they will receive payments to accounts of type "C", the press service of the Bank of Russia explained to Interfax.
Also, according to the regulator's explanation, separate accounting is provided for Eurobonds for which Russian legal entities have related obligations, and replacement bonds for them.
"If there were unfriendly persons in the chain of holders of Eurobonds or replacement bonds after March 3, 2023 (after the entry into force of Decree No. 138), then such securities should be separated, and payments on them should be made to accounts of type "C". To protect bona fide investors, exceptions are provided both in terms of separate accounting and fulfillment of obligations using type C accounts," the Bank of Russia said in a comment.
According to the text of the decree published on Monday, depositories will have to ensure separate accounting of Eurobonds/replacement bonds, if after March 1, 2023, their owners (persons exercising rights to securities) were persons from unfriendly foreign countries.
In addition, debtors of Eurobonds/replacement bonds (obtained, among other things, through the assignment of rights to them), if after March 3, 2023 their owners were unfriendly foreign creditors, will have to fulfill obligations under such securities to residents of the Russian Federation, friendly non-residents and banks in accordance with the procedure established by Decree No. 95 of March 5, 2022 of the year. This decree, in particular, provides that payments on Eurobonds to holders from unfriendly countries are made to accounts of type "C", the use of funds from which is regulated separately.
The decree of September 9 assumes that the requirements of the payment clause do not apply to the fulfillment of obligations under Eurobonds/replacement bonds if one of the following conditions is present: debt securities purchased at organized auctions; purchased before September 1, 2024 from the owner (trustee), who is not a foreign creditor and whose rights to Eurobonds are accounted for/The ZO was carried out by the Russian depository; the fulfillment of obligations and transactions with securities are carried out on the basis of permits provided for by presidential decrees.
The document entered into force from the date of its publication, that is, from September 9.
The new presidential decree continues the line that the Central Bank declared back in the spring of this year, arguing for the instruction to depositories to ensure separate accounting on all depot accounts (with the exception of nominee accounts) of Eurobonds with an "unfriendly trace" acquired after March 1, 2022. The regulator has repeatedly warned market participants about the inadmissibility of using circumvention schemes to buy Eurobonds from unfriendly non-residents, but since the practice of such transactions has become widespread, it was forced to recommend separating such securities, although it saw the disadvantages of such a decision, said the head of the Central Bank Elvira Nabiullina in May.
"We were put in a situation of choosing between not very good solutions (...) We have repeatedly warned that these are workarounds, they should not be used. Repeatedly. Both market participants were told, and widely potential investors. And we have repeatedly discussed possible solutions with market participants, and I have held meetings on this topic, but (...) Unfortunately, what we saw were not isolated cases, but a common practice of circumventing our retaliatory measures, when some participants bought Eurobonds at a large discount from so-called unfriendly non-residents, then sold them here also at a discount, with a smaller discount, making money on it. But often misleading potential buyers that they will be able to receive payments in the Russian circuit, and replacement bonds, and so on," Nabiullina explained the logic of the Central Bank's order issued in March.
"At the same time, there was no check for the presence of unfriendly non-residents in the chain. Moreover, we see cases when transactions were specifically structured through so-called friendly non-residents in order to, as they say, confuse the tracks," the head of the Central Bank noted.
On Monday, Decree of the President of the Russian Federation No. 767 was signed and published, amending Decrees No. 95 and No. 138, which regulate the procedure for payments on Eurobonds of Russian borrowers and the separation of these securities under certain conditions.
"Decree No. 767 is aimed at suppressing the use of schemes to circumvent the requirements established by anti-sanctions regulation for transactions (operations) with securities in the chain of ownership of which unfriendly non-residents were, as well as to fulfill obligations under such financial instruments. In particular, the decree clarifies the requirements for fulfilling obligations to friendly persons, residents and CFC. If there were unfriendly persons in the chain of ownership of their assets, then they will receive payments to accounts of type "C", the press service of the Bank of Russia explained to Interfax.
Also, according to the regulator's explanation, separate accounting is provided for Eurobonds for which Russian legal entities have related obligations, and replacement bonds for them.
"If there were unfriendly persons in the chain of holders of Eurobonds or replacement bonds after March 3, 2023 (after the entry into force of Decree No. 138), then such securities should be separated, and payments on them should be made to accounts of type "C". To protect bona fide investors, exceptions are provided both in terms of separate accounting and fulfillment of obligations using type C accounts," the Bank of Russia said in a comment.
According to the text of the decree published on Monday, depositories will have to ensure separate accounting of Eurobonds/replacement bonds, if after March 1, 2023, their owners (persons exercising rights to securities) were persons from unfriendly foreign countries.
In addition, debtors of Eurobonds/replacement bonds (obtained, among other things, through the assignment of rights to them), if after March 3, 2023 their owners were unfriendly foreign creditors, will have to fulfill obligations under such securities to residents of the Russian Federation, friendly non-residents and banks in accordance with the procedure established by Decree No. 95 of March 5, 2022 of the year. This decree, in particular, provides that payments on Eurobonds to holders from unfriendly countries are made to accounts of type "C", the use of funds from which is regulated separately.
The decree of September 9 assumes that the requirements of the payment clause do not apply to the fulfillment of obligations under Eurobonds/replacement bonds if one of the following conditions is present: debt securities purchased at organized auctions; purchased before September 1, 2024 from the owner (trustee), who is not a foreign creditor and whose rights to Eurobonds are accounted for/The ZO was carried out by the Russian depository; the fulfillment of obligations and transactions with securities are carried out on the basis of permits provided for by presidential decrees.
The document entered into force from the date of its publication, that is, from September 9.
The new presidential decree continues the line that the Central Bank declared back in the spring of this year, arguing for the instruction to depositories to ensure separate accounting on all depot accounts (with the exception of nominee accounts) of Eurobonds with an "unfriendly trace" acquired after March 1, 2022. The regulator has repeatedly warned market participants about the inadmissibility of using circumvention schemes to buy Eurobonds from unfriendly non-residents, but since the practice of such transactions has become widespread, it was forced to recommend separating such securities, although it saw the disadvantages of such a decision, said the head of the Central Bank Elvira Nabiullina in May.
"We were put in a situation of choosing between not very good solutions (...) We have repeatedly warned that these are workarounds, they should not be used. Repeatedly. Both market participants were told, and widely potential investors. And we have repeatedly discussed possible solutions with market participants, and I have held meetings on this topic, but (...) Unfortunately, what we saw were not isolated cases, but a common practice of circumventing our retaliatory measures, when some participants bought Eurobonds at a large discount from so-called unfriendly non-residents, then sold them here also at a discount, with a smaller discount, making money on it. But often misleading potential buyers that they will be able to receive payments in the Russian circuit, and replacement bonds, and so on," Nabiullina explained the logic of the Central Bank's order issued in March.
"At the same time, there was no check for the presence of unfriendly non-residents in the chain. Moreover, we see cases when transactions were specifically structured through so-called friendly non-residents in order to, as they say, confuse the tracks," the head of the Central Bank noted.
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