JSC Russian Railways is collecting investor opinions on the replacement of bonds
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JSC Russian Railways is asking holders of its Eurobonds whether they want to maintain the current payment procedure for these securities. According to experts, the monopoly needed the survey to use it in dialogue with the government as an argument in favor of abandoning replacement bonds. Kommersant’s sources and market participants assure that investors, on the contrary, are interested in replacement securities. But to express this position in a survey, they need to go through some paperwork. Lawyers advise doing this because it will be difficult to influence the situation later.
On October 12, JSC Russian Railways will complete the collection of opinions of its Eurobond holders regarding the preservation of the current method of fulfilling obligations to them. Currently, there are 13 issues of Russian Railways Eurobonds in circulation in five currencies with a total volume of $4.1 billion. Payments go directly to holders in the Russian depository. However, due to the blocking of NSD accounts in the Euroclear and Clearstream depositories, secondary circulation of securities is impossible for Russian investors.
At the end of May, by decree of the President of the Russian Federation, the issue of replacement bonds became mandatory for issuers. Russian companies and banks must decide on this before the end of the year or obtain permission from the government commission not to replace Eurobonds. Managing Partner of AB Pro’SPECT Ilya Bareisha admits that Russian Railways needed the survey as an argument in favor of abandoning substitute securities.
From a copy of the survey (it was provided to Kommersant by the Association of Bond Owners, ABO) it follows that in order to express disagreement (that is, support for the issue of replacement bonds), it is necessary to provide a decision on it, statements from the securities account of an authorized holder of Eurobonds, confirming the fact of ownership of securities for 4 October, a copy of the passport, and for legal entities – a certified copy of the registration sheet in the unified state register. Holders must independently apply for documents to the Russian depositary, where the ownership rights of Eurobonds are taken into account.
“Bondholders are unhappy that they can vote only by sending documents in originals by mail, as well as with a strict deadline – otherwise the current order is expected to be maintained,” says a Kommersant source at the brokerage company. The ABO believes that the survey “if it should be conducted, it should be done in the most understandable form for investors.” The association itself advocates replacement, since “only it is guaranteed to protect Russian investors.” Russian Railways does not consider the number of documents to be large: “There are only three of them, including a passport, and investors have them.” The Central Bank did not respond to Kommersant’s request.
To date, eight issuers have issued replacement bonds in various currencies for a total of more than $16 billion. Several more organizations are considering issuing similar securities, including Alfa Bank (see Kommersant on July 18), MKB, and Tinkoff Bank. VTB is going to replace subordinated Eurobonds in foreign currencies with bonds in rubles, Dmitry Pyanov, deputy chairman of the bank’s board, noted at the end of July. In early September, VEB proposed to confirm the desire to receive direct payments in rubles to holders of dollar Eurobonds maturing in 2025.
Artem Mayorov, director of the asset management department of Ingosstrakh-Investments Management Company, believes that replacement bonds are “more convenient for any Russian investor.” They were issued legally by Russian issuers, are easier to account for and are more liquid, the expert explains. Mr. Mayorov, like Ilya Bareisha, sees the purpose of the Russian Railways survey as reluctance to carry out replacements. However, the monopoly has no arguments not to do this: unlike Norilsk Nickel and NLMK, which make payments to Euroclear, Russian Railways cannot pay there, adds Kommersant’s source on the stock market.
Ilya Bareisha believes that investors who want to obtain replacement bonds “would be wise to take part in the survey.” “In terms of quorum, there is no regulatory procedure for conducting such polls, however, the conditions of the poll are formulated precisely in such a way as to ensure the “quorum” of this kind of “meeting,” adds the lawyer. “It will not be possible to appeal the actions of Russian Railways in this case, since there has not yet been any violation of the rights of investors admitted – the survey in any case is advisory in nature.”
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