The two Russian bonds at the centre this week of the country’s first foreign default since the Bolshevik Revolution more than a century ago were sold to investors using bond prospectuses that were approved by the Central Bank of Ireland.
The bonds were also listed on Euronext Dublin before the exchange moved to delist a series of Russian securities as a result of EU sanctions against the country in the wake its invasion of Ukraine.
The formal documents – used for the two bonds, issued in 2016 and last year, respectively – highlighted various sanctions existing at the time amid what they term as “differences of views… regarding events in Ukraine” in the wake of Russia’s annexation of Crimea in 2014.
The 2021 prospectus for a bond that is due to mature in 2036 also outlined in detail restrictions at the time on the import or export of certain products, technology and services. Prospectuses are used for marketing as well as disclosures to prospective investors.
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Both documents warned that “continued geopolitical tensions, particularly if they were to result in additional sanctions and retaliatory measures, could have a material adverse impact on the Russian Federation’s economy, the economies of the other countries involved, and global economic conditions”.
Russia missed a key deadline over the weekend to pay $100 million (€94.6 million) of interest payments owed on the two bonds, as sanctions imposed in the wake of the country’s invasion of Ukraine in late February made it impossible for it to get the money to international creditors.
Ratings agency Moody’s said the missed payments – following a 30-day period of grace after the interest fell due in late May – constituted a default under its definition, adding that the Kremlin would also likely default on future bond payments.
Russia’s last sovereign default occurred in 1998, during the nation’s financial collapse and rouble devaluation led to then president Boris Yeltsin’s government reneging on $40 billon of rouble-denominated debt. However, this is the country’s first external default since 1918, during the Bolshevik Revolution when Vladimir Lenin, the newly installed communist leader, repudiated the debt of the Russian empire.
When Vladimir Putin ordered his troops to invade Ukraine in February, more than half of Russia’s $40 billion of euro and dollar-denominated debt was listed on the Euronext Dublin exchange, the world’s No1 bond listings venue, under prospectuses approved by the Central Bank. The securities themselves are actually governed by English law, but the documents do not say where disputes could be settled.
The bonds were not traded on the Irish exchange before they were delisted, but over the counter in securities broker-dealer hubs such as London and Frankfurt. Still, Euronext Dublin and an ecosystem of professional services firms in the capital earn lucrative fees from the bond listings line of work. As such, Dublin has played its role in facilitating Mr Putin’s government in accessing global debt markets over the years.
“The Central Bank of Ireland reviews a prospectus to ensure it contains all of the disclosures as required under the [EU] Prospectus Regulation,” a spokesman for the bank said. “Approval of the prospectus is granted when those requirements are met. The Central Bank is not responsible for verifying the information the issuer includes in the prospectus.”
The Kremlin, which has the money to make payments thanks to oil and gas revenues, has accused the West of driving Russia into an artificial default.
A formal default is seen as largely symbolic as Russia is currently unable to borrow internationally and does not need to thanks to plentiful oil and gas export revenues. But the stigma would probably raise its borrowing costs in future.
