Putin aims to avoid ruble defaults to creditors

Russia and Russian companies will be allowed to pay foreign creditors in roubles, according to a decree signed by President Vladimir Putin on Saturday, to prevent defaults while capital controls remain in place.

The executive order establishes temporary rules allowing sovereign debtors and companies to make payments to creditors of “countries that engage in hostile activities” against Russia, its companies and its citizens. The government will prepare a list of these countries within two days.

Russian corporate bonds denominated in foreign currencies have plunged in recent days to deeply distressed levels as investors weigh the impact of sanctions imposed on the country following its invasion of Ukraine. The Russian government has responded to the sanctions by drastically reducing access to foreign currency, which could restrict the ability of bondholders to receive interest and principal payments.

Separately, clearinghouses Clearstream and Euroclear stopped accepting the ruble as a currency of settlement and excluded all securities issued by Russian entities from all triparty transactions, except for a traditional channel used to make payments to bondholders.

In a separate announcement on Sunday, Russia’s Central Bank said it would temporarily relax reporting requirements for Russian lenders to shield them from sanctions pressure. Commercial banks will no longer have to publish their monthly accounts on their websites, but they will still have to submit them to the central bank and can then disclose them to counterparties, the regulator said.

According to Saturday’s decree on servicing debt held by foreigners, payments will be considered executed if made in rubles at the central bank’s official rate.

Debtors can ask a Russian bank to set up a special account denominated in “C” rubles in the name of foreign creditors for settlement, while local creditors will be paid through Russian custodians. The rule applies to amounts over 10 million rubles ($81,900) per month.


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Elaine R. Knight