The central bank of Russia has placed a ban on payments to foreign investors holding Russian stocks and rouble-denominated bonds. This is coming at a time after major overseas’ settlement systems stopped accepting Russian assets.
Kremlin is blocking foreign investors, who hold tens of billions of dollars worth of Russian stocks and bonds, from leaving following its invasion of Ukraine triggered a wave of economic sanctions and a haemorrhage of assets.
On Wednesday, the Bank of Russia announced that it had banned coupon payments for foreign investors holding rouble-denominated sovereign debt, known as OFZs, and Russian companies were also barred from paying dividends to overseas shareholders.
The regulatory bank however, did not indicate how long the ban, which don’t apply to local investors, would last.
Paul McNamara, investment director at asset manager GAM Investments, said “They have no problem with paying OFZs because they can print roubles, but they seem to have decided that foreigners won’t get the money.”
“We can argue the toss about whether that is a default or not, but it doesn’t really matter because this stuff is under Russian law so they can pay them if they want to or not pay them if they can’t.”
Russia was due to pay a 6.5% coupon on Wednesday on an OFZ due to mature in February 2024 while the next payment on hard currency debt, coupons on two Eurobonds, is due on March 16.
According to data from the Refinitiv eMaxx database, asset managers such as Vanguard, BlackRock, Ashmore and Fidelity held the February 2024 bond, based on filings for the end of January.
Also according to Dmitry Polevoy, head of investment at Locko-Invest, Russian banks and companies had $391 billion in outstanding external debt as of October 1.
The National Settlement Depositary (NSD), the Russian system for overseeing the sale of securities, said it was limiting payment options on Russian securities for foreign individuals and companies, as well as a right to transfer such assets, in line with a central bank request.
The world’s biggest settlement systems, Euroclear and Clearstream, are no longer accepting Russian assets, effectively shutting off an exit route for overseas investors.
Confirming the action of the Central Bank of Russia, Belgium-based Euroclear on Tuesday said that the National Settlement Depository had blocked its accounts as a result of the central bank measures.
“To the extent legally permissible, you should wire out any remaining long balances in roubles as soon as possible,” it said.
Also confirmed to have been affected by the NSD action, is Clearstream. The firm has informed its customers that the NSD has blocked all securities held on Clearstream Banking’s FNH Account until further notice.
According to data from the central bank, around 3 trillion roubles ($28 billion) worth of OFZs out of a total market of 15.5 trillion roubles is held by foreigners, and nearly $20 billion, or 51%, in sovereign Eurobonds.
As of July 1, 19.7 trillion roubles in Russian shares were held by foreigners which is about a third of the total market capitalisation at that time.
The Russian stock market has remained shut this week to cut losses.