Russia: Dollar Bond Coupon Payments Held by Citigroup

(Bloomberg) The Russian Ministry of Finance said that coupon payments for two dollar bonds are in the hands of Citigroup, and that the country fulfilled its obligations to investors, even though bondholders in Europe claim that they have not yet received the money.

A person familiar with the matter, however, said that Russia transferred US dollars to settle the coupon payments due on Wednesday on two Eurobonds.

The official statement supports previous reports that JPMorgan Chase & Co. had processed the $117 million funds and sent the money to Citigroup Inc., causing a rebound in bonds and lowering the cost of securing the nation's debt against default. On Friday, Russian credit default swaps represented a 48% probability of default within a year, according to CMAI data, less than 60% on Thursday morning.

“I don't remember a time when there was more uncertainty about sovereign debt; Argentina's default in 2001 was complicated but predictable,” said Gary Kirk, portfolio manager at TwentyFour Asset Management. “This is much more difficult because of global sanctions.”

Confirmation that Citigroup has the cash is the latest piece of information in a coupon payment drama that has come to represent Russia's new and complex relationship with the rest of the world since it invaded Ukraine last month. In the weeks since the start of the war, the energy-rich country has become the most sanctioned country in the world and has seen its credit rating sink to the category of “garbage” due to expectations of non-payment, if not of the coupons that expire this week, possibly later. A Citigroup spokesman declined to comment.

Finance Minister Anton Siluanov said this week that a coupon payment was made in dollars, as quoted by Russian agency RIA Novosti. If it crashes, then it would be paid in rubles. Russia has a 30-day grace period to meet payment obligations starting Thursday.

“If investors are unable to access the funds or if a payment is made in a currency not stipulated in the terms of the obligation and we believe that the investor disagrees with the alternative payment, we could consider it a default,” said S&P analysts in a statement, downgrading the Russia in foreign currency to “CC” from “CCC-”.

Some investors are optimistic that bondholders will receive their payments in dollars. The nation's credit risk has fallen, and its bonds that expire in 2023 and 2043 — which had two coupons expiring this week — are keeping the gains that helped drive their price by more than 100% this week. Both continue to trade at very low levels, around half of their face value.

Attention at Citigroup

In its role as a payment agent, Citigroup collects coupon payments from bond issuers and distributes these funds through clearing houses to custodians and ultimately to bondholders. Service is an essential part of global financial plumbing, although it is rarely given much attention. Now Citigroup must decide whether to transfer it.

A US Treasury spokesman said Wednesday that restrictions on transactions with Russia's central bank and other Russian institutions do not prevent Russia from making dollar payments on its debt, at least until the end of May.

Citigroup is the payment agent for about four dozen bonds linked to Russian companies, according to data collected by Bloomberg. Some of these companies, such as MMC Norilsk Nickel PJSC and Gazprom PJSC, have successfully made coupon payments in recent days.

But in other cases, coupon payments may not have been made. Citigroup this week blocked a US$19.25 million interest payment sent by EuroChem Group AG, a Russian fertilizer manufacturer, according to a person familiar with the matter. Steelmaker and mining company Severstal warned this week that Citigroup could refrain from processing an interest payment of US$12.6 million on its dollar bonds.

Original Note:

Russia Says the Coupon Cash for Dollar Bonds Is With Citigroup

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