Russian Bank Finds Novel Way to Pay Lenders and Bypass Wall Street, Sanctions

(Bloomberg) — Sovcombank PJSC will offer a bond swap to its Eurobond holders to bypass the foreign banking web that has been blocking payments of Russian borrowers after sanctions were imposed following the country’s invasion of Ukraine.

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Russia’s ninth-largest lender was due to make a $12 million interest payment on notes maturing in 2030 on April 7, according to data compiled by Bloomberg, but the bank said that it would stop payments on four notes issued by an Irish vehicle, Sovcom Capital DAC.

Instead, it paid a ruble coupon on April 21 to those holders with rights to the bonds recorded on Russia’s National Settlement Depository, and will offer a bond swap to foreign holders, the bank said in a statement on Friday.

As making payments “using the methods provided for in the documentation is not yet possible” due to the sanctions, PAO Sovcombank will register a new issue of urgent local subordinated bonds and offer Eurobond holders to exchange them for new Russian ones, it said. “This will enable holders to receive payments directly in Russia, bypassing the international payment infrastructure.”

Firms including Severstal PAO, Russian Railways JSC and Alfa Bank PJSC have missed coupon payments in recent weeks because the funds were held up by foreign intermediaries completing due diligence processes. Russian Railways and state-controlled lender VTB Bank PJSC — sanctioned in the U.S., the U.K. and the European Union — said they paid holders of dollar-denominated bonds in rubles in Russia. It remains unclear how easily foreign bondholders can access those funds.

Read More: Russia Faces New Urgency to Dodge Default, Avoid Wall Street