The exchange rate is selected for debts – Newspaper Kommersant No. 216 (7417) of 11/22/2022

The first transaction on the conversion of a foreign currency loan from a resident of an unfriendly state into ruble bonds may take place on the Russian market. As a result, the Russian borrower gets not only the opportunity to pay in rubles, but also releases assets from encumbrance. The scheme, experts believe, may theoretically be of interest to many companies, but it has a number of procedural risks.

In Russia, a deal is being prepared to terminate a foreign currency loan obligation to an unfriendly non-resident (SIA Mintos Finance, Latvia) by crediting ruble-denominated securities to a type C depo account of the lender.

Its holding was approved by the shareholders of IFC Airloans (Kviku brand), follows from a significant fact disclosed on November 21. Bonds worth 2.57 billion rubles will be used as securities. due on December 31, 2026. The shareholders also approved the termination by the IFC CEO of the property rights pledge agreement and the removal of encumbrances from pledged assets.

As Airloans explained, fixing liabilities in rubles provides “protection against foreign exchange risk”, since previously the debt was accounted for in euros. In addition, the company has “a chance to make settlements with a foreign creditor in the conditions of accepted restrictions on settlements with non-residents from unfriendly countries.” Airloans claims that this is the first such deal on the Russian market. According to Ekaterina Makeeva, Head of Sanctions Practice at JSB A-PRO, this could be the first permission issued by the Central Bank to replace assets in a new format. Mintos Finance did not respond to the query “Kommersant”.

Type C accounts are opened by banks, depositories, brokers and clearing organizations to account for securities and funds of non-residents. These accounts are subject to restrictions, in particular on currency conversion and withdrawal of funds abroad. At the same time, Russian borrowers, as follows from the explanation of the Central Bank by presidential decree of February 28, are prohibited from fulfilling obligations to creditors from unfriendly countries in foreign currency.

According to Yury Fedyukin, Managing Partner of Enterprise Legal Solutions, the presence of official restrictions does not remove the borrower’s risk. Failure to fulfill obligations to a foreign creditor can and with a high degree of probability will be recognized as “a breach of contractual obligations and may entail extremely unpleasant consequences: from the inability to enter foreign capital markets in the foreseeable future to a cross-default”. The expert calls the conversion of liabilities into securities one of the possible solutions to the problem.

Ekaterina Makeeva notes a number of exchange schemes that are already being implemented. So, in a centralized manner, depositary receipts of Russian issuers for their shares are subject to exchange. In addition, a number of companies have issued replacement ruble bonds that are exchanged for Eurobonds of these issuers (see Kommersant of October 20).

As a Kommersant source in the financial market explained, the Airloans scheme is primarily of interest to the Russian borrower. “Repayment of the loan through the transfer of bonds of the corresponding value allows you to close the currency risks and remove the uncertainty associated with servicing the loan. In addition, the termination of the loan allows you to remove the encumbrance from collateral, which will significantly increase the company’s ability to lend in Russia, ”says the interlocutor of Kommersant. For foreign companies, there are fewer advantages, but the issue of debt service is still partly resolved.

Risks also arise, but to a greater extent procedural – first of all, difficulties in obtaining documents, Ms. Makeeva notes. The whole procedure may take six months or more, the Kommersant source clarified, permission from regulators is required (the Central Bank of the Russian Federation did not respond to a request).

According to Yuri Fedyukin, the scheme may be of interest to “a generally unlimited range of Russian companies”, the question is only in the consent of foreign counterparties. Formally, the scheme can be implemented without it, but “this can lead to a break in relations in the future,” the expert notes. The chief analyst of RegBlok, Anna Avakimyan, estimates the potential volume of such conversions at $3-5 billion.

Ksenia Kulikova, Ekaterina Volkova