2022 – Russia considers gas-to-ruble model for foreign Eurobond payments By Reuters

© Reuters. Russian Finance Minister Anton Siluanov speaks to reporters after talks with representatives of major Russian companies in Moscow on August 24, 2018. REUTERS/Tatiana Makeeva/file photo

(Reuters) – Russia is considering paying Eurobond holders using the mechanism it uses to settle its gas payments in rubles, although investors said doing so would not allow Russia to avoid a historic default.

According to the Kremlin and Russia’s finance minister, the system will allow Moscow to pay bondholders while bypassing Western payment infrastructure. It comes days after Washington voted against extending the license that allows US creditors to receive bond payments while allowing Russia to avoid default.

This move by the US Treasury has brought Russia one step closer to defaulting in hard currency. Foreign holders of international bonds are now awaiting two coupon payments that matured last week but have a grace period of 30 days.

Russia says it has the money and is willing to pay, refusing to discuss the default. Finance Minister Anton Siluanov said on Monday that Moscow will continue to service its foreign debt in rubles.

He told Vedomosti newspaper that in order for holders of foreign bonds to receive payments in foreign currency under Russia’s obligations, they will have to open accounts in rubles and hard currency in a Russian bank.

“It is like paying for gas in rubles: we are credited in foreign currency, and here it is exchanged for rubles on behalf of (the gas buyer), and this is how payment is made,” he said.

“The international bond settlement mechanism will work in the same way, only in reverse.”

Siluanov told Vedomosti that the money will be channeled through Russia’s National Settlement Depot (NSD).

Unlike many Russian financial institutions, NSD is not subject to Western sanctions. He said that there will be no limit to how the ruble can be converted into other currencies, and the government will review the program soon.

In a conference call with reporters, Kremlin spokesman Dmitry Peskov supported Siluanov’s plan but said the Treasury would consult with bondholders before it was rolled out.

“There is money, there is a willingness to pay, whether in rubles or under any scheme that is more convenient for bondholders. Everything will depend on these contacts,” Peskov said.

The Treasury did not respond to a Reuters request for comment. A source in the financial markets said that Russia plans to introduce the program to investors before the next repayment of two bonds on June 23.


Russia has around $40 billion in international bonds outstanding, with nearly $2 billion to be repaid before the end of the year. Some of its bonds issued after 2014 have receivables that must be settled into NSD and alternative currencies, including the ruble.

The terms of bonds usually state that all creditors are to be paid, and failure to do so can be considered default. Investors said default appears inevitable after US creditors are prevented from accepting Russian debt payments.

“From a legal perspective, it is possible to lend money to bondholders, but not to avoid default,” said a Europe-based investor.

Ziaullah, partner and head of crime and investigations at law firm Eversheds Sutherland, said EU investors could still receive payments, “unless a bank subject to an asset freeze participates in the payment chain.”

Some European energy companies opened ruble accounts with Russia’s Gazprombank after the Kremlin demanded “unfriendly” countries pay for gas in rubles or cut them off from the electricity grid. Buyers must deposit euros or dollars into an account with a Russian bank, which converts cash into rubles.

The source said in the financial markets that it has not yet decided which bank will be used to repay the Eurobonds.

God said Russia is unable to make payments in dollars because US banks are prohibited from entering into such deals.

“Anything denominated in dollars has to be paid in another currency…as long as you are willing to accept non-dollar payments, nothing is stopping you,” he added.

But investors were skeptical, given the stigma attached to doing business with Russia.

“It looks legally possible, but I don’t think people will accept it,” said one bondholder in Europe, describing the payments system as a “difficult gray area.” “The reality is that it would be difficult for a global fund operating in both the United States and Europe to accept this mechanism.”