Banks want the option to exchange sovereign Eurobonds for OFZ, but there is no consensus yet – Siluanov


Nov 25, 2022 12:17 PM

Banks want the option to exchange sovereign Eurobonds for OFZ, but there is no consensus yet – Siluanov

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Moscow. Nov. 25 (Interfax) – The option to exchange sovereign Russian Eurobonds due 2023 for new Federal Debt Bonds or OFZ, which was included in the draft federal budget as it prepares for second reading, banks came to forward as a result of dialogue with Russia, but there is no agreement on the terms of a possible deal with them, Finance Minister Anton Siluanov said.

This amendment, drafted by the Ministry of Finance and approved by the State Duma, along with other government amendments to the draft budget, gives the government the option to exchange foreign currency-denominated Eurobonds for new Federal Debt Bonds, or OFZs. Is. 800 billion rubles by 2023. Government securities denominated in foreign currency may only be exchanged for ruble-denominated securities of equal or greater maturity. The bonds will be redeemed at their market value, which will be determined by the government and negotiated with the bondholders. Separately, the amendment provides that the Bank of Russia has the right to receive ruble-denominated government securities during their initial placement as part of the exchange of foreign currency-denominated Eurobonds conducted by the Central Bank.

“We are aware of such attitudes [on the subject of a possible swap] Offers to solve the problem of open currency positions, mainly from financial organizations, from banks. That is to say, our financial institutions have invested large sums in Eurobonds, in securities with foreign participation. It is proposed to exchange these investments for the Russian people for issues of Russian securities. We have discussed this with several banks,” Siluanov said in an interview with Nelia Askar-Z on the Rossiya 24 TV channel.

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“But our offer was as follows: we are willing to trade, to trade, but based on current market prices for Eurobonds. Our bankers did not like everything about our offers,” says Siluanov.

He added that MinFin was ready to “proceed in this direction” but acted “on the basis of emerging prices for these assets”.

“That is, we set the price of Eurobonds on the market, we are ready to issue ruble bonds and conduct such exchanges accordingly. But today not everyone is happy. That’s why we’re talking. A The final decision has yet to be made.” Being judged, ”Siluanov said.

MinFin’s rationale for the revision is that Russia’s external debt would decrease as a result of a possible exchange of Eurobonds for ruble securities, thereby reducing the currency risk associated with debt service. However, the Ministry notes that it should also be taken into account that the return on Eurobonds is lower than the return on government bonds in rubles. So, depending on the configuration, the swap will either increase the cost of servicing the government debt in the long run, or increase the government debt itself, or both.

MinFin said the debt on Russian Eurobonds was about $35.7 billion as of October 1, 2022. The ministry now makes all payments on eurobonds in rubles in accordance with the presidential order of 22 June.

800 billion rubles OFZ is equivalent to 13.2 billion dollars at the current exchange rate of the Central Bank.

The exchange of sovereign Russian Eurobonds for local bonds has not been widely discussed so far. Corporate borrowers have the option of replacing Eurobonds with bonds issued under Russian law, but in the same currency as the Eurobonds redeemed. Payment on these “replacement” bonds will be made in rubles at the rate of the Central Bank on the date of payment.

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