Russia's US$117m debt coupon payout leaves clearing houses

[LONDON] Clearing houses in Europe and the US have processed Russia's US$117 million bond coupon payment, bringing the funds one step closer to bondholders, according to people familiar with the matter.

The funds have been funneled through clearing houses, which settle and clear transactions for securities, the people said, declining to be identified because they aren't authorised to speak publicly about the issue. The funds were denominated in dollars, 2 separate people said.

The cash has traveled through the financial system, from JPMorgan Chase & Co which served as the correspondent bank, to Citigroup, the paying agent, and through the clearing houses. Typically, the cash would land shortly in custodian banks, and finally bondholders.

A spokesperson at Euroclear declined to comment, while a spokesperson at Clearstream didn't immediately reply to a request for comment. A representative from the Depository Trust & Clearing Corporation didn't immediately comment when reached by phone.

The 3 clearing houses settle most of the world's transactions.

The wider market interest in every step of the payment process for the coupons due this week exemplifies just how complicated Russia's relationship has become with global investors.

In the weeks since it invaded Ukraine, the energy-rich nation has become the world's most sanctioned and saw its credit grade sink well into junk on expectations of a default - if not on the bond coupons due this week, then possibly later.

"I can't remember a time when there has been more uncertainty over a sovereign - the Argentina default back in 2001 was messy but predictable," said Gary Kirk, a portfolio manager at TwentyFour Asset Management. "This is far more difficult due to the global sanctions."

Russian Finance Minister Anton Siluanov was cited by RIA Novosti as saying this week that the nation would try to settle the payment in dollars, but if that fails, they'll use roubles instead.

Russia has a 30-day grace period to meet the payment obligations that started Thursday (Mar 17). A Treasury spokeswoman said US sanctions on Russia don't prohibit Russia from making these debt payments, mirroring a similar statement from Wednesday.

Even though the cash has left Citigroup, the coupon payments have put a spotlight on the difficulties of navigating sanctions imposed by a number of countries on Russia.

Citigroup is the paying agent for about 4 dozen bonds tied to Russian companies, according to data compiled by Bloomberg. Some of those companies - including MMC Norilsk Nickel and Gazprom - have successfully made coupon payments in recent days.

But in other cases, coupon payments may not have gone through. Citigroup this week blocked a US$19.25 million interest payment sent by EuroChem Group, a Russian fertiliser maker, according to a person familiar with the matter. The steel and mining company Severstal warned this week that Citigroup may refrain from processing a US$12.6 million interest payment due on its dollar bonds. BLOOMBERG