Belarus in no rush to find a new paying agent for its Eurobonds

Belarus in no rush to find a new paying agent for its Eurobonds
By bne IntelliNews August 28, 2022

On Tuesday, 23 August, Belarus’ First Deputy Prime Minister Nikolai Snopkov told state Belarusian media that the government did not consider it an urgent matter to look for a new paying agent for Belarus’ Eurobonds.

During a press conference, Snopkov said: “Do we have to look for it? It is not a matter of urgency for us for now.” Today, only a day later, Belarus’ Finance Ministry announced that it had in fact paid its 2026 and 2031 Eurobond holders $38.6mn in interest.

In spring, Belarus announced that it would pay off its foreign debt obligations in its national currency; however, only in July was such a payment actually registered for Belarus’ Eurobond payments.

As a result, Fitch Ratings downgraded Belarus’ long-term foreign currency issuer default rating (LTFC IDR) from CCC to RD (Restricted Default) since it did not make its payments according to the original agreement, which stipulated that the payments must be made in US dollars.

In June, Belarus’ Finance Minister Yuri Seliverstov admitted that Belarus had begun having problems with making its debt payments through international clearing and depository systems already in February.

After having first transferred its debt payments in dollars to Citibank, the Finance Ministry received numerous complaints from creditors who had not received their payments, while Citibank claimed that all the payments had been made.

When the Finance Ministry investigated the matter, they found that the problem was actually with the international clearing and depository systems refusing to let through the payments.

According to Seliverstov, the international depository and clearing systems refused to discuss the matter with the Finance Ministry. While explaining the situation to the Belarusian parliament, Seliverstov was noticeably upset, claiming that these organisations were “freeing themselves from any liability and responsibility citing the sanctions as the reason.”

In June, Seliverstov attempted to put the ball in Citibank’s court by making it access the Eurobond payments in Belarusian rubles through an account in the sanctioned Belarusbank. However, just a week later, Citibank announced that it would no longer work as the paying agent for Belarus’ Eurobond payments.

Having looked for a new paying agent for two months, the Belarusian government appears to have given up, since there’s likely no bank that wishes to take on this role.

Minsk’s response was this snap comment made by Snopkov on Tuesday: “We believe that if they don't want to communicate and interact with us, if all the international financial organisations have essentially taken away all the financial flows from us, why do we have to look for someone in order to make transactions? Those who need it should look for it.”

By resigning from this obligation, Belarus loses any confidence which it might have had left among foreign creditors.

Does Belarus have the money?

Belarus currently holds about $7.5bn worth of gold and foreign currency reserves. However, $3bn is in gold and $1.4bn are special drawing rights (SDR) issued by the IMF; these might not be easy to convert, as both the EU and the US won’t allow Belarus to convert its gold or SDRs into euros or dollars.

Belarus only owed $22mn in July this year but in February 2023 it will have to pay $800mn to foreign debtors. Considering that it only has $3.1bn in liquid FX assets, this could prove to be a challenge. To make matters worse, Belarus will lose billions of US dollars in exports this year due to sanctions, which could make the $3.1bn dwindle even further.

Thus while Belarus may have the money to pay its foreign creditors this year, it might have a hard time meeting its payments due in February 2023.

If what Belarus’ Finance Ministry reported today is true, that it has in fact paid $38.6mn in interest to its creditors despite not having a designated paying agent, then perhaps Belarus won’t have any problem with paying off $800mn in February 2023 either. However, if this payment is unable to reach Belarus’ creditors due to problems with the international depository and clearing systems, Belarus will have an outstanding debt problem on its hands.

While Fitch Ratings were quick to issue a default statement over Belarus’ Eurobond payments in rubles in July, Moody’s and S&P left Belarus’ credit rating at CCC and CC respectively, while Moody’s chose to announce on the sidelines that Belarus had indeed defaulted on its payments.

S&P explained its reason for keeping Belarus’ credit rating at CC by saying that it acknowledged that Belarus did indeed have the money but was simply temporarily unable to pay. However, on August 3, S&P lowered its LTFC IDR for Belarus to SD (Selective Default).

As long as Belarus solves its Eurobond payments this year it can avoid a mounting debt and a downgraded credit rating across the board. Then Belarus’ Finance Ministry will only have to worry about February 2023.