The National Settlement Depository of Russia announced on Friday that it was added to the extended sanctions list of the European Union. Moscow had intended to make use of the service for servicing the Eurobonds of the country, but in light of this move, all transactions in euros will now be suspended. Previously, the country’s Eurobonds had been serviced by Citibank, but since it had stopped, Russia had announced in the start of the week that the NSD would now be doing so. It would be the first time in more than a century that Russia is at a risk of default when it comes to external debt.
A waiver from the United States that permitted Russia to use the currency of issuance for servicing its Eurobonds had expired last week. Therefore, Moscow had come up with a plan that would push foreign bondholders to reach out to a Russian bank for opening hard currency and roubles accounts. Conversion of the roubles into forex would have allowed Russia to use the NSD for paying back its bondholders. The NSD functions the same way as Clearstream and Euroclear, which are clearing houses of Western countries.
Now that their Russian counterpart has decided to not conduct transactions in euros, the threat of default is looming over the country larger than ever. The NSD said that it will continue conducting transactions in other foreign currencies as per routine. According to a statement, the situation was regarded as an emergency. It recommended that foreign currency be added to correspondent accounts. On Friday, the EU had decided to introduce another package of sanctions against Russia, which come as a punishment for the country’s invasion of Ukraine that began on February 24th. The newest round of sanctions target oil exports, individuals as well as banks.
According to analysts, the latest sanctions would block accounts of the NSD not just in euros, but also in Clearstream and Euroclear. Furthermore, it would also become impossible to service bonds denominated in forex that are issued by Russian companies or the state. Market experts said that there had been hope that they could renew a Euroclear-NSD bridge, but that had become impossible now and will remain the case until special waivers are given or the sanctions removed. The total value of client assets with the NSD are around $1.12 trillion, or 70 trillion roubles.
This includes foreign securities, like the Eurobonds,worth 9 trillion roubles. The international bonds that remain outstanding for Russia are worth $40 billion and it has to make payments of nearly $2 billion before the year end. According to Moscow, they are ready to pay and have the cash to do so. It has blamed Europe and the United States for bringing it close to a default that had happened more than a century ago after the Bolshevik revolution. Analysts said that the NSD’s foreign stocks cannot be sold anymore, but the fact that NSD and Euroclear had already suspended cooperation meant that people were unable to make any deals.