Russia is building a new bond-payment system to get around US sanctions, as it tries to avoid a historic default
- Russia is building a new bond-payment system as it tries to get around US sanctions, a Moscow newspaper reported.
- The new system will be a mirror image of the one currently in place to handle natural gas exports, per Vedomosti.
Russia is planning to set up a new system to manage its foreign bond payments in an effort to stave off an historic default, according to a report in a Moscow newspaper.
The new system would be a mirror image of the one Russia put in place to deal with natural gas exports, Vedomosti reported Monday, citing Finance Minister Anton Siluanov.
Under the bond-payment system, investors will have to open a foreign currency and a ruble account at a Russian bank, and provide instructions permitting exchange, Siluanov said.
The system would allow Russia to make its bond payments in rubles, which would then be exchanged, enabling the investor to receive payment in the correct currency.
"Now we are finalizing this mechanism, we will discuss it in the government. After that, we will come up with an offer to our investors," Siluanov said.
Russia has kept up payments on its foreign-currency bonds since its invasion of Ukraine in late February, despite widespread expectations that it would default for the first time since 1918.
But its task became more difficult last week, when the US Treasury let a key sanctions exemption expire. The move means US institutions cannot receive bond payments from Russia without breaching sanctions.
Siluanov told Vedomosti the new payment system would allow Russia to bypass the entire Western financial system's settlement infrastructure. Payments would be made only through Russia's National Settlement Depository.
The finance minister said on state TV Friday that Russia would make payments on euro-denominated bonds in euros, as the EU had not banned payments, Bloomberg reported.
However, the US has made it clear that it wants to make life difficult for Russia and so Western investors may be reluctant to agree to the plans, said Timothy Ash, a strategist at BlueBay Asset Management.
"If you're a European bank with significant activities in the US, you probably will decline, for fear of getting involved in secondary US sanctions," he told Insider.
Russia had $100 million of foreign bond payments due last week, in both euros and dollars. Bloomberg reported that they had not arrived in investors' accounts Friday.
The government has more than $1.8 billion of bond payments left to make this year, according to a list compiled by analysts at JPMorgan.