Russian debt: a circle to be squared

By Rodrigo Olivares-Caminal, Of Counsel at Kepler-Karst Law Firm and expert in Sovereign Debt.

Russia recently missed an interest payment on two of its sovereign bonds, the 2026 USD and 2036 EUR bonds, and, as it is common in these instruments, they enjoy a 30-day grace period that just ended. Things are getting difficult.

The 2026 USD prospectus is quite interesting, because it allows for payments to be made in USD, but also in EUR, GBP or CHF if, for reasons beyond its control, Russia is unable to make payments in USD (in whole or in part).

In the same sense, the 2036 EUR prospectus allows payments in currencies other than EUR as well, but goes even further and also adds the RUB as a possible alternative payment currency.

Although these conditions may seem positive, the reality is that not fulfilling obligations in the established currency –EUR or USD- may not be ideal for the original creditor (e.g. currency mistmatch).

If this was not enough, there is another relevant clause that makes things more difficult to square the circle: the so-called Currency Indemnity Clause. This clause allows for a discharge of the payment obligation in situations where someone receives or recover (not necessarily recover) a payment in another currency (and, why not, in another place). However, the payment received in RUB, must allow the creditor to purchase the necessary amount of USD to offset the original obligation due.

In any event, clarity is required on whether there has been a discharge for Russia on its obligations, what is the difference between receiving and recovering payments, or whether Russia was prevented to pay because of the Western sanctions (or if these were self-inflicted and thus Russia is not excused for not making the payment).

All these issues are subject to interpretation by a court of law, but Russia has not waived any of its sovereign immunity and has not submitted to the jurisdiction of any court in any of the two prospectuses.

What a circle to be squared and here at Kepler-Karst we can assist.


Rodrigo commented for Reuters on this subject and he appeared in numerous international media outlets such as Euractiv, Daily Mail and Magnet