Russia pays its debts in roubles, Sberbank and Alfa-Bank are in the SDN list

The US bans use of Russia’s frozen reserves for servicing of government debt

On April 4, Russia was supposed to make payments on two government bonds totaling more than USD 60mln. The state planned to fund the debt payments with the part of its frozen reserves in the US, the same way as it did in March. However, this time the US blocked the use of Russia’s reserves, and Russia’s Ministry of Finance decided to make the payment in roubles. The payments were directed to type “C” accounts of non-residents, from which taxes, duties, fines, commissions in Russia can be paid and government bonds can be purchased. The Ministry of Finance said that it would consider the possibility of converting money on these accounts into foreign currency after the freeze of reserves of the Russian Central Bank will be lifted.

According to several international rating agencies, Russia’s rouble debt payments will be considered as a technical default. In the current circumstances where Russia’s financial market is divided into two circuits, internal and external, we see no material consequences to this event. We do not see any significant consequences for state-owned companies, thus, there will most likely be no additional operational risks resulting from this news.

Sberbank and Alfa-Bank are in the SDN list

Restrictive measures against these banks include a complete freeze of banks’ assets which are in any way related to the US financial system. Additionally, the US citizens are prohibited from conducting any transactions with those banks and their subsidiaries. The deadlines for completing transactions with Sberbank and Alfa-Bank are April 13 and May 6, respectively. At the same time, the US is going to continue operations with these banks related to the energy sector until June 24, 2022. The US investors will have to sell their equities or bonds of Sberbank by 25th of May 2022. Stakes and bonds of Alfa-bank will have to be sold by the US investors by the 30th of June 2022.

Both banks have already been under US sanctions since February. Alfa-Bank was prohibited from raising capital in the US markets, and Sberbank had to close correspondent accounts in the US. This made it impossible for Sberbank to conduct international transactions in dollars. In light of the new restrictions, Sberbank claimed that it has already adapted to the previously introduced restrictions, and the bank continues to operate as usual. Alfa-Bank announced the suspension of transactions with the US counterparties in foreign currency.

London supported Washington’s position and also froze Sberbank’s assets in the UK territory. Moreover, the UK introduced restrictive sanctions on MKB Bank.

 

Authors: Vladimir Tsuprov, CIO, Egor Kiselev, Head of International Business & Investment Marketing, Marina Tsutskiridze, Investment Specialist, Aleksandra Kuznetsova, Investment Specialist

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