The U.S. Department of the Treasury has blocked payments of the accrued coupon and principal on the Russia-2022 Eurobond issue, scheduled to mature on April 4, from Russia’s frozen international reserves, Bloomberg reported, citing an unnamed OFAC official (a division of the agency responsible for sanctions enforcement).

Also scheduled for April 4 was the payment of a coupon on Russia-2042 Eurobonds in the amount of about $84 million.

This step is aimed at forcing Russia to choose one of three unattractive options for it: to make payments at the expense of dollars of reserves, which are inside the country, or at the expense of new revenues, or to be in default, Bloomberg quotes a representative of OFAC.

The Russia-2022 Eurobond issue was placed in 2012, it is denominated in dollars, the volume in circulation was $2 billion. The scheduled maturity date and payment of the accumulated coupon is April 4. Last week, a few days before this date, the RF Ministry of Finance offered investors to redeem the Eurobonds of this issue for rubles at the exchange rate of the Central Bank of Russia as of March 31. The redemption of Russian sovereign Eurobonds for rubles will allow to eliminate discrimination of Russian holders in settlements, which arises when making payments through international depositories, explained Finance Minister Anton Siluanov.

As a result of the redemption, carried out at a price of 100% of par, the Ministry of Finance received bonds with an aggregate par value of $1.448 billion, which corresponded to 72.4% of the volume in circulation. After the redemption, the balance of the Russia-2022 issue in circulation is $552.4 million at par. The Russian Finance Ministry said Thursday evening that the ministry had sent the relevant notice to the payment agent for the Eurobonds – Citibank, N.A., London Branch. However, at the moment the ministry has not reported whether the payments on this issue have been made to the remaining holders of Eurobonds, as well as the fate of the coupon on Eurobonds maturing in 2042.

So far, despite concerns about the inability to make foreign currency payments on sovereign Eurobonds amid the freezing of part of Russia’s international reserves, the Ministry of Finance has had no problems with payments. In March, a payment was made on Eurobonds maturing in 2023 and 2043, then the holders received the coupon on Eurobond-2029 (the terms of this issue provide for the possibility of payment in rubles, but the RF did not use it). On March 21, the National Settlement Depository received funds for coupon payments on Russia’s sovereign Eurobonds maturing in 2035, then coupon and principal payments were made as part of the partial redemption of the Russia-2030 issue, which has an amortization structure.

Finance Minister Anton Siluanov said earlier that the Finance Ministry will give all necessary payment orders to transaction agents in order to make the payment in currency. But the payment in currency will be possible only on condition of unfreezing the foreign currency accounts of the Central Bank and the government, he emphasized. If foreign banks will not be able to process the payment order of the Ministry of Finance in currency due to the freezing of reserves, Russia will pay in rubles, the minister warned. Under current conditions, such a payment would be a fulfillment of obligations on the part of the borrower, the Finance Ministry said, disagreeing with the opinion of rating agencies that payment in rubles on foreign currency debt would mean default.

“Yes, of course, in conditions when Russia’s foreign exchange reserves are frozen – most of them, which are in reserve currencies, we are talking about dollars, euros, yen, pounds – then the fulfillment of the payment, which is envisaged exactly in these currencies in conditions of frozen foreign exchange reserves, will probably face certain difficulties. Nevertheless, it will depend already on the capabilities of those banks, and these are Western banks, where the accounts of the Russian Federation are located, to execute this order,” Siluanov said on March 14, commenting on the prospects for the passage of one of the payments.

“If we see difficulties with the execution of this order, (…) we will prepare a corresponding payment order in ruble equivalents. We also have such a scenario in accordance with the presidential decree in case the payment order does not pass in currency,” the head of the Ministry of Finance noted.

“Is it a default or not? We fulfill our obligations, but those countries, which, in fact, defaulted on us by freezing gold and foreign exchange reserves, create difficulties with the fulfillment of our obligations. Therefore, from the point of view of the Russian Federation, we are fulfilling our obligations. The issue of writing off these funds from our foreign currency accounts, which are not in our jurisdictions and for which it was decided to suspend operations by Western countries”, – commented Siluanov.