Ireland-based Russian debt must be repaid shaken by Ukraine sanctions

Irish-registered bonds of Russian banks and companies due to be repaid in the near future have been rocked as the EU and the United States led a new round of sanctions this week against the country, after the President Vladimir Putin has ordered troops in two separatist regions of Ukraine. .

On Wednesday evening, US President Joe Biden moved to ban US financial institutions from processing transactions from two major Russian public institutions, Vnesheconombank (VEB) and Promsvyazbank, both of which have used Dublin as a fundraising hub.

While VEB, a state development bank, was prevented from raising funds in Western markets in 2014 following international sanctions after Russia annexed Crimea from Ukraine, it continues to have 3 $.7 billion of outstanding bonds that were sold before that date by its Ireland-based VEB Finance Vehicle. These include a billion-dollar debt that must be repaid in July.

While credit rating firm Fitch said in a report last summer that VEB could cope with such debt repayment from other sources and cash injections from Putin’s government if needed, the value maturing bonds fell to 89.6c on the dollar from 100c at the end of last week as the latest sanctions eroded investor confidence that they would get all their money back.

Promsvyazbank bought and canceled more than $1 billion in Dublin-listed bonds in late 2019 after the bank was nationalised, ending its use of Ireland as a funding center for its operations.

Meanwhile, the value of $2 billion in bonds issued by a long-standing Irish vehicle of Russian energy giant Rosneft, called Rosneft International Finance, fell nearly 3.5% this week to 96, 7c on the dollar as investors eye the expected redemption date next week. for the debt.

A 2020 research paper by Cillian Doyle and Jim Stewart of Trinity College Dublin estimated that Russian entities raised €118 billion between 2005 and 2017 through Irish Special Purpose Vehicles (SPVs) under the role of Dublin as an international place for the registration of all things government. bonds to the riskiest forms of corporate debt. Much of that has since matured.

The attraction for Russian companies at the start of the last decade was the fact that, although they could not, for tax and regulatory reasons, directly issue Eurobonds, the creation of an Irish SPV under of a trust structure has severed the direct ownership link with the business.

A Central Bank paper published in late 2020 pointed out that “herd behavior” often plays a role in why banks in a particular country choose the same jurisdiction to set up SPVs. The main buyers of bonds issued by Russian-sponsored entities in Ireland are believed to be Russians.

Russian companies’ use of Irish SPVs for fundraising dropped following the 2014 sanctions, as a number of state-backed companies were banned from raising funds in Western markets.

A Russian banking crisis between 2014 and 2016, resulting from the impact of these economic sanctions as well as a drop in the value of oil at the time, dealt a blow to Irish bond investors.

Declared bankrupt

Some $60 million in bonds issued by an Irish SPV in November 2016 for a Russian bank called Tatfondbank, were deemed worthless months later after the borrower, who was being investigated for fraud, was declared bankrupt.

Another lender, Vneshprombank, imploded in January 2016, causing the bank-linked Irish SPV to default on its $225 million bond.

While Russian companies have been big players in the international debt finance industry in Dublin, the country’s investors and assets play a peripheral role in the €4 trillion in assets of Irish-domiciled investment funds. .

Pat Lardner, managing director of the Irish Fund Industry Representative Bond, said Russia was not among the top 25 sites for Irish fund investors in 2020. The smallest of the 25 sites accounted for 0, 3% of investors in Irish funds.

Mr Lardner said Russia was the main investment location for the assets of just five of the roughly 8,000 funds domiciled in Ireland in 2020, with these focusing on equity indices tracking Russian companies listed on the stock exchange.

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