Banks may have their subordinated replacement bonds denominated
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The prepared amendments to the legislation make it possible to solve the problem of issuing replacement bonds for subordinated Eurobonds of banks, which belong to unqualified investors. The low denomination of such securities created problems for their accounting in the bank’s capital during “replacement”. Since 2022, Eurobond holders cannot only sell them, but also receive coupons.
The State Duma Committee on the Financial Market approved for the second reading the amendments to the legislation, which create an opportunity for unqualified investors to exchange their subordinated Eurobonds of Russian banks for replacement instruments.
In particular, according to the document, it is allowed to place replacement bonds, formally intended for qualified investors, in favor of Eurobond holders who do not have such a status. In addition, it is proposed not to apply to replacement bonds the requirements of the law on banks at the nominal value of a subordinated bond, which is set at no less than 10 million rubles.
According to Presidential Decree No. 364 of May 25, the conditions for issuing replacement bonds are extended until January 1, 2024. The parameters of the replacement papers should be similar to Eurobonds in terms of maturity, yield, coupon payment schedule and face value. However, for banks, such conditions had a negative impact on capital.
“For a number of subordinated instruments, we are not able to issue “mirror” bonds, since they were issued before the “Basel period”, respectively, and now with the same write-off or conversion triggers, we will not be able to register these instruments due to the fact that now they they register according to the Basel principles,” Dmitry Pyanov, deputy chairman of the board of VTB, explained at the end of June (see Kommersant of June 27). This is one of the main problems for issuing replacement bonds without capital losses, the top manager specified.
Subordinated Eurobonds – perpetual or with a fixed maturity – are available from several banks. At the same time, Russian investors, holders of subordinated bonds, which are accounted for in the capital of banks, do not receive coupon payments and do not have the opportunity to sell securities. In particular, VTB, Sovcombank, Tinkoff-bank, HKF-bank do not pay coupons. Only MKB continues to pay coupons to holders of such Eurobonds, whose ownership rights are recorded in Russian depositories.
As Sergei Khotimsky, First Deputy Chairman of the Board of Sovcombank, noted, now “there are quite a lot of investors who have purchased securities in the secondary market for less than the limit amount.” This, according to him, is typical for securities issued before 2019. As NSP partner Alexander Nektorov explains, Eurobond holders “may include both qualified and unqualified investors”. If the papers are the last to hit, this will lead to “a violation of the law and a possible loss of subordination of the issue.” “Subordination is critically necessary for banks in order not to burden capital adequacy standards,” the expert emphasizes.
The ICB noted that they are considering the issue of replacement papers, working through “legal and regulatory issues.” Alfa-Bank said that they are waiting for clarifications from the Central Bank, the decision on the issue can be made only after that. Tinkoff Bank plans to issue replacement bonds and is “in dialogue with regulators on all possible issues.” VTB, according to Mr. Pyanov, issues related to the possible issuance of replacement bonds, will decide by the end of the third – the beginning of the fourth quarter. The Bondholders Association calls the amendments “a reasonable decision that resolves the conflict that has arisen.”
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