Conditions for permission not to issue replacement bonds
The Extract contains two criteria which may permit Russian legal entities with obligations under foreign bonds issued by foreign entities (“Russian Issuers”) to avoid issuing such replacement Eurobonds.According to the Extract, a Russian Issuer is not subject to the provisions of Decree of the President of the Russian Federation No. 430Decree of the President of the Russian Federation No. 430 of 5 July 2022 “On the Repatriation by Residents Participating in Foreign Economic Activity of Foreign Currency and the Currency of the Russian Federation,” as amended by Decree of the President of the Russian Federation No. 364 of 22 May 2023 relating to the obligation to issue replacement bonds if the following conditions are met:
- there is no debt outstanding under the Russian issuer’s Eurobonds as at the date of the application for permission; in particular, the obligations owed by Russian issuers to Russian holders whose Eurobonds are held through foreign infrastructure are fulfilled (including following the procedure prescribed in Decree of the President of the Russian Federation No. 529 of 8 August 2022, ie by transferring funds to type “D” accounts); and
- one of the following conditions is satisfied:
- the Russian Issuer has obtained consent from the Eurobond holders to separate payments being made to holders whose Eurobonds are held through Russian securities depositories and those whose securities are held through a foreign securities depository, and (i) the Eurobonds are admitted to trading on the Moscow Exchange; and (ii) the Russian issuer has obtained the consent of the securities holders owning more than 75% of the total number of Eurobonds within the “Russian perimeter” that the obligations under the Eurobonds will be cash settled rather than settled by issuing replacement bonds; and
- the Eurobonds mature before 31 December 2024 (inclusive).
What does it mean for Russian Issuers?
As a rule, the conditions imposed in the Extract and the circumstances that need to be taken into account are extremely difficult for Russian issuers to comply with due to a number of factors.- First, a separate bondholder meeting will need to be held to pass a resolution through a process known as “consent solicitation.” Eurobond holders’ resolution packages previously received by a number of issuers often permitted direct payments to holders (bypassing Western financial infrastructures). However, such resolutions generally did not provide for holders to opt out of issuing replacement bonds (as required by the Sub-Commission). If Western trustees and other relevant financial infrastructures, which have stopped servicing Russian corporate Eurobonds due to sanctions, fail to cooperate, it will be difficult to obtain over 75% of votes from the “Russian perimeter” bondholders.
- Second, not all issuers’ Eurobonds are admitted to exchange trading in Russia.
- Third, for various reasons, including due to sanctions, some issuers have outstanding debt under their Eurobonds.
