Russia: Alternative methods of payments applied to securities issued by Russian issuers in non-RUB currencies - Update
Note: This announcement, originally published on 23 November 2022 and updated on 12 December 2022, 17 May 2023 and 5 December 2023, has been further updated to provide clients with information about direct payments applicable to different instrument types. Relevant changes have been highlighted.
Clearstream Banking1 informs its clients that it has put in place an amended procedure that it will apply whenever it has been notified by its common depository that an alternative method of one or more income and or redemption payments, different from those foreseen in the Terms & Conditions of the security, has been applied by a Russian-related issuer of an international debt security.
Alternative methods of payment that Clearstream Banking has observed being made by Russia-related issuers in the context of sanctions regulations of the U.S., EU, Switzerland and the UK and countermeasures of the Russian Federation include but are not limited to:
- Payments made outside the Clearing System in a currency such as RUB other than the original currency of the security; or
- Payments directly to certain holders and end investors or persons claiming to be holders and end investors outside the Clearing System
Clearstream Banking observes that issuers seek to accomplish these objectives by paying a regular income payment (including but not limited to dividend payment, interest payment or a redemption payment) for which the position is held with the clearing systems on an account of a holder in Russia directly. For Eurobonds this takes place with a repurchase/acquisition of bonds held in the Clearing System or by an exchange of bonds held in the Clearing System for Russian instruments (implying but not necessarily achieving the cancellation of the purchased or exchanged amounts of the bonds).
In the event that a client knows, or has a reason to know, that a Russian issuer of securities or an issuer of Eurobonds with Russian guarantor intends to credit or has credited the client or a downstream holder with a payment potentially relating to any income payment in respect of an amount of securities held at Clearstream Banking, on an account other than client's account at Clearstream Banking, clients are required to notify Clearstream Banking of:
- The amount paid and in which currency
- The identity of the holders in respect of which the payment is to be received
- The date on which payment has been received
Clearstream Banking aims to avoid double payment in this scenario without, however, making any determination whatsoever about whether the payment outside Clearstream Banking represents any discharge of the issuer’s obligations to it or to its clients or to downstream holders. Clearstream Banking will not process repudiation instructions in respect of such payments and will not issue any markdown instruction in respect of such payments to its depository. Clearstream Banking may block the securities on the client's account.
Any client in this situation is required to send to Clearstream Banking a free format message with the following content:
Regular income payments or final redemption of Eurobonds
QUOTE
Attention: Income team Luxembourg
We refer to security ISIN code and Name: […]
Event type: Coupon/Redemption/Dividend
Payment date: […] [/ Intended payment date: […]]
Our account XXXXX (please indicate the account holding the position, including a sundry account should it be the case)
Our Holding: XXXXXXXX
We hereby inform you that a direct [partial/full] payment has occurred on […] in deviation from the terms of the security and the framework in place with the official paying agent. We further confirm that this payment has been received from […] in the amount of [currency + amount] [please provide allocation by underlying beneficial owner] corresponding to the Income entitlement on a balance of [currency + amount]. We further confirm that the latter balance was (will be) cancelled/ not cancelled by the Issuer [please select the right scenario].
We agree that Clearstream Banking S.A. shall not be held liable for any loss, claim, liability, expense or damage that we could suffer as a result of the non-payment of coupon/redemption amount on our account with Clearstream Banking S.A. We furthermore agree to indemnify Clearstream Banking S.A. against any loss, claim, liability, expense or damage that Clearstream Banking S.A. could suffer as a result of this non-payment.
UNQUOTE
Repurchase/acquisition of bonds
QUOTE
Attention: Income team Luxembourg
We refer to security ISIN code and Name: […]
Event type: Coupon/Redemption
Payment date: […] [/ Intended payment date: […]]
Our account XXXXX (please indicate the account holding the position, including a sundry account should it be the case)
Our Holding: XXXXXXXX
We hereby inform you that an alternative [partial/full] restructuring has occurred on […] in deviation from the terms of the security and the framework in place with the official paying agent. We further confirm that the Notes which were held on the Coupon Payment Record Date by […] in the balance of [currency + amount] [please provide allocation by underlying beneficial owner] were repurchased on the open market, corresponding to the Income entitlement on a balance of [currency + amount]. We further confirm that the latter balance was cancelled by the Issuer.
We agree that Clearstream Banking S.A. shall not be held liable for any loss, claim, liability, expense or damage that we could suffer as a result of the non-payment of coupon/redemption amount on our account with Clearstream Banking S.A. We furthermore agree to indemnify Clearstream Banking S.A. against any loss, claim, liability, expense or damage that Clearstream Banking S.A. could suffer as a result of this non-payment.
UNQUOTE
Until now, Clearstream Banking has instructed its common depositories and common service providers not to collect partial payments for its account as long as the reconciliation was not complete. In view of the implementation of the revised procedure described below, Clearstream Banking will instruct its common depositories and common service providers to collect partial payments with the intention of crediting proceeds to clients for which neither the client nor the common depository has communicated that an Alternative Payment has been made outside the Clearing System to its benefit or that of a downstream holder. Clearstream Banking aims to credit such proceeds within 30 calendar days after receipt.
However, Clearstream Banking recognises that intelligence received from common depositories and common services providers will likely originate from unilateral statements of issuers. Accordingly, Clearstream Banking puts clients on notice that the credit of such proceeds is exposed to a heightened risk of later reversal or adjustment. Accordingly, entitled clients will have the possibility through a separate Opt Out event to suspend the payment of these proceeds on their account until such time as information provided by issuers has been matched with information provided by the clients affected by the external payment.
This revised procedure has been tailored to address the idiosyncratic behaviour of some Russia-related issuers and foresees various checks and validation steps. While Clearstream Banking cannot guarantee the integrity of any affected payment given the circumstances, it believes that the above checks and steps are necessary to preserve such integrity.
Clearstream Banking reminds clients of the requirement to comply and to ensure compliance by any of the client's underlying clients, with any applicable sanctions, including but not limited to those of the European Union, the United Nations, the United States and the United Kingdom.
Further information
For further information, clients may contact Clearstream Banking Client Services or their Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG clients using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany, and registered in Register B of the Amtsgericht Frankfurt am Main, Germany, under number HRB 7500.