Belarus’ financial sector part I – Belarus’ bond debt and its ability to pay

Belarus’ financial sector part I – Belarus’ bond debt and its ability to pay
By bne IntelliNews October 28, 2022

In June, Belarus’ Finance Minister admitted that the country had already begun having troubles with making its debt payments through international clearing and depository systems in February due to the Western sanctions. This statement was made in connection to Citibank’s resignation from its position as Belarus’ designated paying agent.

While the Belarusian government has repeatedly stated that it wishes to honour its debt payments to bondholders, it’s also said that it will make these payments in Belarusian rubles. In July and August, Fitch Ratings, Moody’s and S&P all declared Belarus to be in restricted/selective default a “technical default”, since Belarus did have the money to pay its bondholders, but did not make the payments under the original terms, i.e. in US dollars.

In late August, the Belarusian government seemed to have given up on finding a new paying agent, as its First Deputy Prime Minister announced: “Do we have to look for it? It is not a matter of urgency for us for now.”

Current outstanding bond debt

According to Cbonds' data, Belarus’ total outstanding bond debt currently consists of $5.668bn, €977mn, BYN4.828mn and RUB32.878mn; making up 62.13%, 10.67%, 21.32% and 5.88% of the bond debt each.

The Belarusian government bonds are represented by the following types of securities:
• VGDO - government long-term bonds denominated in foreign currency
• VGKO - government short-term bonds denominated in foreign currency
• GDO - government long-term bonds
• GKO - government short-term bonds

In 2022, Belarus will have to pay $150mn for three maturing VGDO bonds. The dates to look out for this year are November 4 ($100mn) and November 25 ($50mn).

In 2023, Belarus will have to pay $160mn and €50mn for maturing VGDO bonds, and another BYN100mn and BYN360mn for its maturing GDO and GKO bonds respectively. Furthermore, Belarus has an unsecured bond of $800mn, which matures on February 28. This will be the most important payment date to look out for, as it’s an unusually large payment, and since Belarus’ ability to pay it off in dollars is highly limited. The dates to look out for in 2023 are: February 28 ($800mn), May 4 ($160mn), July 27 (BYN170mn), August 31 (BYN100mn), August 31 (BYN100mn), October 6 (BYN100mn) and November 3 (€50mn).

On September 28, Belarus’ MinFin published a memo to the holders of Belarusian Eurobonds. The memo details the possible payment methods for upcoming coupon payments and on the payment of the $800mn bond maturing on February 28. According to the memo, bondholders can replace their Eurobonds with domestic Belarusian government bonds, requesting early redemption of the Eurobonds.

The memo states that domestic bonds denominated in dollars will also be paid in Belarusian rubles, and that these payments will be made through a Central Securities Depository of the Republic of Belarus. For an early redemption of Eurobonds, settlements will be made in US dollars if there is a technical possibility. For this, the bondholder is requested to consult with its servicing bank about the possibility to receive a transfer in USD from JSC “ASB Belarusbank”.  Otherwise, the payments will be “made in Belarusian Rubles to an account in a Belarusian bank at the rate of the National Bank of the Republic of Belarus on the date of payment.”

Moreover, the memo outlines how bondholders wishing to receive their coupon payments made by Belarus’ MinFin on June 29, August 24 and August 29 this year can access their payments. Again, the MinFin emphasised that these payments are “made in Belarusian rubles to an account in a Belarusian bank at the exchange rate of the National Bank of the Republic of Belarus as June 29, August 24 and August 29, 2022.”

The information included in this memo corresponds to the Resolution by Belarus’ Council of Ministers and National Bank made in April, that Belarus’ bond payments are made “at the expense of funds in foreign currency by transferring to a special bank account with JSC "ASB Belarusbank" in Belarusian rubles.” This clearly shows that although Belarus has indeed made coupon payments this year, they have been made in Belarusian rubles and through Belarusian banks.

Belarus’ gold and FX reserves

Since August 2022, the NBRB has discontinued its publishing of the structure or various factors that influenced changes to Belarus’ total gold and FX reserves. This also included canges to its gold and FX reserves in July.

In June, Belarus’ gold and FX reserves increased following FX-purchases by the NBRB on Belarus’ Currency and Stock Exchange. The country’s gold and FX reserves were negatively affected by the honouring of foreign debt obligations of around $210mn and a revaluation of the country’s Special Drawing Rights which it received from the IMF last year.

According to the Chairman of the NBRB, Pavel Kallaur, Belarus’ current gold and FX reserves “hover” at $7.5bn. This can be compared with the $8.5bn gold and FX reserves which Belarus had as of February 1 this year, a near $1bn decrease over the course of 8 months.

In an interview from in July, Belarusian economist Ales Alyakhnovich, representative of Svetlana Tikhanovskaya's headquarters for economic reforms, told Radio Free Liberty that around $1.4mn of these reserves are in the IMF’s Special Drawing Rights (SDRs), $3.1bn are in gold and around $600mn could be in euros. Neither the US nor the EU will allow Belarus to convert its SDRs into dollars or euros, and the EU has prohibited all transactions with the NBRB; for the IMF to convert the SDRs through its automatic conversion procedure the matter has to be taken up at a vote in the IMF, where there’s a high chance that the West can garner enough support to reject such a request by Belarus.

This leaves $2.4bn left in various liquid dollar denominated assets. This is certainly enough for Belarus to meet its next $800mn dollar payment on February 28, but that payment would leave its liquid reserve assets at a dangerously low level.