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It's Default: Potential Impact Of Ruble Negotiate Of Eurobonds For Belarus

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It's Default: Potential Impact Of Ruble Negotiate Of Eurobonds For Belarus

Opinion of experts.

Officials have decided to pay debts on Eurobonds in Belarusian rubles. The Ministry of Finance says this step is stipulated by technical difficulties - foreign banks refuse to transfer funds to investors. In this situation, Minsk intends to offer bondholders alternative options. However, in any case, default on obligations means default on securities, explain the experts of the Kosht Urada project. Analysts told zerkalo.io how it threatened the whole country, as well as whether it brings difficulties for the population.

The government and the National Bank have decided to pay debts on Eurobonds in Belarusian rubles. The Ministry of Finance says this is a forced measure, as investors complain about the fact that funds, sent by Minsk, don't reach them. The Ministry specifies they made such a payment in February, but the money did not reach the bondholders. The Ministry of Finance states foreign banks do not make transfers due to the sanctions imposed on Belarus.

The agency says it intends to offer an alternative to holders of our Eurobonds. One of the options is to buy back securities from them early, but with a substantial discount on the nominal value, as well as re-issue bonds, to stipulate the possibility of repayment of debts in rubles.

Why Minsk's decision means a bond default (it has actually already happened)

- "The current decision of the government and the National Bank to pay obligations on the Eurobonds is a de facto default on securities," say the experts of Kosht Urada. - Default is a failure to fulfill obligations to creditors. The Ministry of Finance of Belarus fails to fulfill its obligations undertaken when issuing and placing these Eurobonds. In particular, the obligations say the issuer must return the face value of the bond to the bondholder within a certain period of time, as well as additional income, if it is a coupon bond. Payments must be made in the currency of the issued securities, unless otherwise stipulated in the prospectus. Apparently, in our case, it is not stipulated. It was initially promised to pay in the currency of face value.

Analysts specify the current situation with Eurobonds can be considered a technical default.

- In fact, the country has money to pay off obligations. We want to pay, but we can't," Kosht Urada analysts say. They add that a technical default, judging by the commentary of the head of the Ministry of Finance, occurred in February, when investors did not receive funds.

Will it threaten the Belarusians?

- Default on foreign liabilities does not directly affect the population," the experts of Kosht Urada say. - The word "default" is a loud one. Many people associate it with the 90s, when everyone lost everything. The current default on Eurobonds is a different default. It is unlikely to affect a single Belarusian citizen directly.

According to analysts, the default on domestic liabilities could directly affect the Belarusians. However, they consider such a scenario unlikely in the short term.

- Our government has been actively placing foreign currency bonds on the domestic market. The holders of these bonds are the banks, companies and the population. If such a default were to happen, then those who invested in them would lose their money. However, the Ministry of Finance, as stated by the ministry, does not pay the holders of Eurobonds, not because there is no money, but because, as they say, foreign counterparties do not want to make payments. Inside the country, they'll deal with payments. It's not about default on domestic bonds right now.

Experts believe that given the future protracted financial crisis and a possible currency deficit, Belarusian investors may also face, if not default on payments, then at least forced conversion of obligations from the currency into Belarusian rubles.

- It may happen. But right now it is a default on foreign liabilities, it does not yet affect the investors, who have invested in domestic bonds. This is an unpleasant wake-up call," the analysts say.

What is the threat of default for the country?

One of the major risks associated with bond defaults is reputational damage, which could scare away potential investors.

- If Minsk fails to pay investors, its image will be tarnished. The country's credit rating will collapse. We may face problems getting new loans. Investors will not invest in our economy. The point is that it has already happened to our country. Western investment markets are practically closed to us because of the sanctions," say analysts. - There are still partners in the East who are willing to somehow cooperate with Belarus. The default means the attractiveness of Belarus as a favorable jurisdiction for investment will be further reduced.

Would investors agree to proposals of Minsk to re-issue Eurobonds?

Experts consider the scenario when bondholders will agree to their re-issuance and subsequent re-payment in Belarusian rubles unlikely.

- What would an investor do with the Belarusian rubles then? It is unclear how to use rubles then. Come to Belarus and go to an exchange office to buy cash euros? We do not sell in such quantities. Shall I open an account in a Belarusian bank or use some intermediaries to convert the rubles into dollars or euros and then withdraw them? It's also difficult. The proposal of the Ministry of Finance to reissue the eurobonds obviously does not look tempting for investors, analysts say. - The government can force the Belarusian banks to agree to any terms, for example, to replace one bond by another. But it cannot force conditional European investors to do what our Finance Ministry wants.

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