Confusion over whether Russia’s foreign bondholders will receive payments that were due Wednesday put the spotlight on the bank at the center of it all:
group Inc.
acts as the paying agent, charged with receiving and processing payments into bondholders’ accounts for the two dollar-denominated bonds issued by Russia. Russia’s Ministry of Finance said Thursday that it had passed funds for servicing those bonds on to Citi’s London branch. Bondholders were owed $117 million by Wednesday.
Investors who hold the bonds said they hadn’t received payment. One said there was no news from Citigroup on Wednesday about whether the bank had received the funds from Russia and if they would be passed on to creditors.
A spokeswoman for Citigroup declined to comment.
There has been little clarity over when and whether investors can expect payment. Russia’s finance minister has said he wasn’t sure if the payments would go through, blaming U.S. sanctions for setting the country on the path toward default.
The Treasury Department has said that current U.S. sanctions don’t prohibit Russia from making debt payments.
Regardless of who is responsible for the holdup, lack of payment will start the clock on a default. The bonds have a 30-day grace period, meaning if creditors still haven’t received funds by mid-April, they can declare an official default.
Prices on the bonds rallied Thursday on hopes that the payments go through. Russia’s bonds maturing in 2023 traded at around 41 cents on the dollar Thursday, compared with 26 cents Wednesday, according to AdvantageData. Those maturing in 2043 were bought and sold for around 32 cents Thursday, up from about 22 cents Wednesday. They traded above 100 cents on the dollar before the war.
The last time Russia reneged on its foreign debts was after the Bolshevik Revolution in 1918. Russia defaulted on its local-government debt in 1998 as the post-Soviet economy struggled to find its feet.
Citigroup is one of the biggest U.S. banks abroad and sits in the middle of important financial infrastructure, clearing transactions and helping investors and companies move money across borders.
The bank’s role in collecting money for Russia’s bondholders highlights the complex relationships that built up over the years between Western banks and Russia. Many banks rushed in after the end of Communism, but have trimmed down their presence after the 1998 bond default and the 2014 Russian annexation of Crimea.
U.S. sanctions that came into effect in 2019 blocked American banks from helping Russia raise money in debt markets, but only affected new issuances. The Russian dollar bonds at the center of the missed payments were sold in 2013.
In theory, Russia has plenty of money. Heading into the war with Ukraine it had accumulated more than $630 billion in foreign-currency reserves, which in normal times it can use to pay its debts. But the punishing U.S. sanctions on Russia’s central bank and finance ministry have thrown into question what Russia is permitted to do with the reserves.
Under the terms of two bonds, payment can only be rendered in dollars. An alternative payment in rubles, which the government has raised as an option if a dollar payment can’t be given, would violate the terms of issuance, also setting grounds for a default.
Citigroup has a bigger presence inside Russia than other U.S. banks, with about $10 billion in total exposure and 3,000 people. Its chief financial officer has said it could lose nearly half of that exposure in the worst-case scenario.
Citigroup said earlier this week that it will exit other businesses on top of the retail bank it had already planned to shed, and wouldn’t be adding new business in Russia.
—Matt Wirz contributed to this article.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Source link
