Russian banks are returning to the practice of paying coupons on Eurobonds

Russian banks are gradually returning to the practice of paying coupons on subordinated Eurobonds, which they suspended in 2022–2023. The return to payments may be associated either with the issue of replacement bonds or with the payment by the issuer of dividends on its shares. In this way, the inequality in the position of investors who own Eurobonds in Russian and foreign infrastructures is actually removed.

Sovcombank, which suspended the payment of coupons on “perpetual” Eurobonds in the spring of 2022, is returning to this practice. “Starting with the next coupons, payments will be resumed in rubles in the manner prescribed by law,” the bank told Kommersant. We are talking about two subordinated issues (coupons 7.6% and 7.75%) and one perpetual issue (coupon 2%). According to Rusbonds, the next payments are due on November 17 and 29.

Banks have the right to unilaterally cancel coupons on “perpetual” bonds without any reason at all; this is written down in the terms of the issues, explains Alexey Bulgakov, head of the debt market analytics department at Renaissance Capital. At the same time, according to him, Alfa Bank and Moscow Credit Bank – both are under strict US sanctions – paid and are paying coupons through NSD to bondholders whose rights are taken into account in the Russian infrastructure. It also pays coupons to holders of its RSHB bonds.

Payments on “eternal” bonds were suspended by HKF Bank, Sovcombank, VTB and Tinkoff Bank. In September, only the last one returned to payments – in relation to bondholders whose rights are taken into account in the Russian infrastructure. The bank explained that the cancellation of payments is directly related to the EU sanctions, which it fell under in February. Considering that Tinkoff Bank approved the issue of replacement bonds, the bank apparently decided that the problem of “fairness” with the issue of replacement bonds was resolved, believes Alexey Bulgakov. As for the payments themselves, the expert adds, coupons are paid through NSD in rubles to holders whose rights are taken into account in the local infrastructure (that is, the securities are stored either in NSD or in Euroclear through Russian brokers).

At the beginning of the year, the first deputy chairman of the board of Sovcombank, Sergei Khotimsky, told RBC that payments on Eurobonds would resume “no later than the accrual of dividends on shares.” At the beginning of this week, the bank announced its decision to allocate 5 billion rubles for dividends. At the same time, Sovcombank also approved the placement of replacement bonds at the end of October.

Two other “defaulters” did not respond to Kommersant’s requests to resume settlements on subordinated Eurobonds.

HKF Bank suspended payments in the summer of 2022, since they “cannot be made in full accordance with the interests of all investors, both foreign and Russian.” At the same time, on November 3, the bank decided to place replacement bonds.

In December 2022, VTB suspended the payment of coupons on the “perpetual” subbord for $2.25 billion “until the bank resumes payment of dividends on ordinary shares.” In October 2023, the first deputy chairman of the bank, Dmitry Pyanov, reported that the group plans to “start coupon payments” on subbords from payment dates within 2024. According to the head of the bank, Andrei Kostin, dividend payments for 2023 “most likely there will be no” (see Kommersant Online, September 11).

At the same time, according to the decree of the President of the Russian Federation, all issuers are required to issue replacement Eurobonds by January 2024. Oleg Bychkov, partner at Prospekt Bank, believes that regarding the ability of banks to return to payments on Eurobonds, “much depends on specific investors and the reputation of banks.” At the same time, the expert clarifies, if we are talking about payments in favor of those investors whose rights are taken into account abroad, the funds can be credited to a special account of type “I”.

Olga Sherunkova