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Widening sanctions hit Russia’s debt servicing – Industry roundup: 7 June

Widening sanctions disrupt Russia’s Eurobond servicing

Russia’s National Settlement Depository (NSD), which Moscow was planning to turn to for servicing the country’s Eurobonds, will suspend transactions in euros following the European Union’s addition the entity to its extended sanctions list, the NSD announced on 3 June.

Sanctions imposed by Western countries and their allies on the country following its illegal invasion of Ukraine on 24 February have all but excluded Russia from the global financial system.

Earlier last week, a US waiver allowing Russia to service its Eurobonds in the original currency of issuance expired. In response Russia’s finance ministry announced that it was replacing Citibank, which has stopped servicing the Eurobonds, with the NSD as the country risks its first major external debt default in more than a century.

Finance Minister Anton Siluanov said that Moscow would continue to service its external debts in roubles. On 2 June, the finance ministry said Citibank had ceased acting as the fiscal, transfer and paying agent as well as the registrar from 24 May on four Eurobond issues maturing in 2023, 2028, 2042 and 2043.

The finance ministry added that a delay in payments on its Russia-2022 Eurobond due on 4 April was solely caused by “unlawful actions” of foreign financial intermediaries and that it was ready to consider and, if necessary, settle bilaterally all claims regarding its debt obligations on the Russia-2022 Eurobond.

Moscow’s proposed alternative plan would have required foreign bondholders to open rouble and hard currency accounts at a Russian bank that would then convert roubles into forex and pay bondholders back via the NSD.

The risk of default has grown now that the NSD, a Russian version of western clearing houses Euroclear and Clearstream, has said it will suspend operations in euros although it will continue transactions in other foreign currencies as normal.

“The NSD considers this situation to be an emergency,” it said in a statement. “We recommend adding foreign currency to NSD’s correspondent accounts, taking into account the risk analysis of such crediting.”

On 3 June the EU said that it would broaden its sanctions against Russia, targeting individuals, Russia's oil exports and major banks in response to the invasion of Ukraine – or according to Russian state-controlled media a “special military operation”.

According to Reuters, analysts say that the sanctions would block NSD’s accounts in euros as well as in Euroclear and Clearstream, making it impossible to service forex-denominated bonds issued by the state and Russian companies.

“There were hopes that the Euroclear-NSD bridge could be renewed but in current circumstances this will be impossible until after sanctions are lifted or special waivers are granted,” said Dmitry Polevoy, head of investment at asset manager LockoInvest.

The NSD holds 70 trillion roubles (RUB) (US$1.12 trillion) worth of client assets, including RUB9 trillion of foreign securities such as Eurobonds linked to the Russian state.

Russia has around US$40 billion of international bonds outstanding, on which nearly US$2 billion of payments are due before the end of the year.

Moscow insists that it has adequate cash and is willing to pay and blames the US and Europe for pushing it closer to its first potential default on international bonds since the Bolshevik revolution more than a century ago.

“This makes it impossible to sell foreign stocks held at the NSD but given that the NSD and Euroclear have suspended cooperation earlier, some investors were unable to make any deals... anyway,” Promsvyazbank said in a note.

India has growing appetite for discounted Russian oil

India is seeking to capitalise on the sanctions imposed on Russia by Western nations by accelerating its purchases of oil from Russia. According to The Times of India, the country’s state-owned refiners are keen to import more heavily discounted supplies from Russia's largest oil company Rosneft, as international players turn down dealings with Moscow over its invasion of Ukraine.

State processors are collectively working on finalising and securing new six-month supply contracts for Russian crude to India, said people with knowledge of the companies’ procurement plans. They added that cargoes are being sought on a delivered basis from Rosneft, with the seller set to handle shipping and insurance issues.

The new supply agreements, if concluded, will be separate and in addition to shipments that India already buys from Russia via other deals. Details on volumes and pricing are still being negotiated with banks set to fully finance all cargoes, said the individuals who requested that they remain anonymous as discussions are confidential.

Unprecedented volumes of Russian crude were already heading to India and China last month as European buyers scrambled for replacements and reached as far as the United Arab Emirates for replacements, the Times reports. The ensuing panic and rerouting of global oil flows have lifted oil by more than 20% since late February when Russia invaded Ukraine.

The potential ramp-up of Russian crude purchases is likely to impact on India’s spot imports, said the paper’s sources. India bought more than 40 million barrels of Russian oil between late-February and early May, which comes to about 20% more than flows for all of 2021 according to Bloomberg calculations based on trade data.

Russian oil deliveries into India for May were at 740,000 barrels a day, up from 284,000 barrels in April and 34,000 barrels in May 2021 according to data from commodities intelligence provider Kpler.

The report states that the sources say Indian refiners will increasingly procure directly from Rosneft and other Russian companies as top international traders such as Glencore wind up their dealings with Russia. State refiners include Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum, while private processors are Reliance Industries and Nayara Energy, which is partly owned by Rosneft.

Procurement activities for India’s state and private companies are conducted independently, but both have been ramping up purchases of Russian crude as sanctions and trade restriction rolled out by the US, UK and European Union have caused other buyers to depart and offer levels to slump.

Refiners in India, which is Asia’s second-largest oil consumer, have benefited as profits increase from turning cheap crude oil into fuels that are sold domestically and also in the export market to customers in Europe and the US. Russian crude forms just part of India’s overall basket of crude oil sources alongside other long-term as well as spot purchases from the Middle East and Africa.

The Times comments that while India’s purchases of Russian crude aren’t illegal or in breach of any sanctions, the country has come under pressure from both the Biden administration and EU to stop doing business with Moscow in order to cut off the Kremlin’s access to oil revenue and funds.

India’s retort is that despite the sharp increase in the past three months, its volume of Russian imports is still a small percentage of Europe’s purchases and only a fraction of the country’s total consumption.

Discounted Russian oil has nonetheless provided Narendra Modi’s administration with some relief, as the country attempts to keep its post- Covid-19 economic recovery on track and dampen resurgent inflation. India imports more than 85% of its oil and surging oil prices threaten to dampen GDP growth, which could reach up to 8% this year.

Access to cheap crude is already boosting India’s oil imports, which grew almost 16% in April from a year earlier. The share of oil from the Eurasian region, which includes Russia, grew to 10.6% in April against 3.3% in the same month last year, according to oil ministry data.

The report comes as India’s external affairs minister, S. Jaishankar, denied claims that India is also acting as a conduit for Russian oil sales to other countries. International media reports have suggested that Indian private refiners are profiteering by buying Russian crude at discounted rates and then selling it to other buyers at much higher prices.

“There’s an enormous shortage of oil,” he responded. “Getting access to oil is difficult. A country like India would be crazy to get oil from somebody and sell it to somebody else. This is nonsense.”

Blockchain company starts insolvency procedure

Ireland’s, which promotes itself as “the world’s first enterprise-grade blockchain-enabled trade finance platform,” has started an insolvency procedure, according to the Irish Independent.

The paper reported at the weekend that the Dublin-based blockchain company, which is co-owned by several major banks, had called in a liquidator. It added that the joint venture of banks including HSBC and Deutsche Bank and tech giant IBM has called a creditors’ meeting for next week where it is proposed a liquidator from PwC be appointed.

The start-up’s other backers include CaixaBank, Erste Bank, KBC, Natixis, Nordea, Rabobank, Santander, Société Générale, UBS, UniCredit Italy and credit information firm CRIF. was formed as a consortium in 2017 as one of the first enterprise blockchain consortia to offer a trade finance solution and steadily attracted backers. Initially targeted at European small to medium-sized enterprises (SMEs) it aimed to offer open account trade finance and bank payment undertakings.

However, the press report stated that struggled to reach profitability and relied on ongoing financing from its shareholders. Its most recent accounts for December 2020 show a loss of €8 million (US$8.6 million) on revenues of €4 million ($4.3m).

Plans to hold a mid-funding round in mid-2020 were hit by the Covid-19 pandemic, triggering a round of redundancies in June that year. Only two of its shareholder banks, CaixaBank and Nordea, had full deployed its solution at that stage. A small number of non-shareholder banks licensed the trade finance offering, although some were affiliates of the owners. They include Eurobank, CSOB, UniCredit Germany and Turkey’s Akbank.

Other major bank-backed blockchain trade finance platforms include Marco Polo, Komgo and Contour, while SETL – the London-based blockchain firm behind IZNES the French platform for trading investment funds – briefly went into administration in April 2109 but was able to emerge the following month.

Singapore digital initiative targets supply chain inefficiencies

More than 70 participants have signed up to share data on the Singapore Trade Data Exchange (SGTraDex), a digital utility that aims to tackle supply chain inefficiencies by connecting partners in the local and global supply chains via a common data infrastructure.

Participants include Singapore’s three local banks DBS, OCBC and UOB, as well as Standard Chartered, along with multinational corporations (MNCs), large local enterprises and small-and-medium-sized enterprises (SMEs) including ports group PSA International, Jurong Port, Ocean Network Express (ONE), Advario, commodity trader Trafigura, and energy companies ExxonMobil Asia Pacific and Chevron.

The public-private initiative was launched on 1 June on the sidelines of Asia Tech x Singapore (ATxSG) 2022 by Josephine Teo, the city state’s Minister for Communications and Information and Minister in-charge of Smart Nation and Cybersecurity.

“Digitalisation has transformed many sectors, but in the global supply-chain and trade sector, its promise has yet to materialise,” said Antoine Cadoux, CEO of SGTraDex Services. “The physical exchange of paper remains the norm. We believe that the plug-and-play digital infrastructure we have created at SGTraDex will go a long way to make it easy for all participants to share data under an agreed set of rules.

“Our goal at SGTraDex is to enable global trade to happen more quickly, more reliably, and with higher integrity. We are working with industry participants to identify problems that digitalisation can help resolve and demonstrate the value of coopetition, the idea that competitors should build differentiated capabilities and competitive advantage, but they should also collaborate to solve common problems.

From three initial use cases, SGTraDex is expected to unlock more than S$100 million (US$73m) in value for existing participants by 2026. This is expected to materialise through cost savings from improved efficiency and productivity, optimal use of assets, and faster access to financing.

Coriolis Technologies and the Global Trade Professionals Alliance (GTPA) partnered to launch what was billed as the world’s first digital trade database in April 2019.

Dubai retailer Majid Al Futtaim accepts crypto in Binance partnership

Dubai is progressing with crypto adoption as the country’s retail giant, Majid Al Futtaim, has partnered with Binance to accept cryptocurrencies at its shopping malls and other outlets. The two companies said they will cooperate on several crypto and blockchain projects.

Initially, Binance Pay will be integrated to allow millions of customers to pay with cryptocurrencies “at Majid Al Futtaim’s various destinations in line with appropriate laws and regulations,” the press release notes. Binance Pay currently supports more than 40 cryptocurrencies, according to the company’s website.

According to the company’s investor presentation published in February, Majid Al Futtaim operates in 17 countries. Its portfolio includes 29 shopping malls in five countries across the Middle East and North Africa, including Mall of the Emirates, Mall of Egypt, Mall of Oman, and Mall of Saudi. In 2021, its malls had 175 million visitors.

The company also operates 423 Carrefour stores in 16 countries across the Middle East and has exclusive franchise rights in over 30 countries across the Middle East, North Africa, and the Commonwealth of Independent States (CIS) regions. Majid Al Futtaim also operates 11 hotels in the UAE, two in Bahrain and 607 cinema screens.

“Majid Al Futtaim is one of the most prestigious businesses in the Middle East and has millions of customers every year,” said the CEO and co-founder of Binance, Changpeng Zhao, aka CZ. “Integrating Web3 technologies will give its customers access to innovative new ways to engage with its brands and provide new ways to pay.”

Other planned collaborations between Majid Al Futtaim and Binance include listing non-fungible tokens (NFTs) on Binance’s marketplace and creating a digital wallet infrastructure to hold cryptocurrencies from multiple platforms.

Separately, Dubai-based luxury property developer DAMAC has reported the sale of a property for US$50 million settled via virtual currencies, in its first crypto sale.

Central bank chief reassures on Pakistan’s economy

The State Bank of Pakistan’s (SBP) acting governor has talked up the country’s economic outlook in a podcast.

Referencing the recent problems of another Asian economy Dr Murtaza Syed declared: “We are not Sri Lanka neither we are close to it, in fact, [our] 6% GDP growth for the last two years is an amazing shock for the entire world.

“There is no doubt that the economy is facing challenges and the economies of many countries are in trouble due to commodity high prices after Covid. Sri Lanka is one of them, but they did not manage well and took some wrong or late decisions that created problems for the country.”

While some reports have noted similarities in challenges facing both countries, Dr Syed continued: “Pakistan is not Sri Lanka. The country was badly hit by Covid as their income from tourism dried up. The tourism-based economy failed to fight off the challenges. For two years, they allowed the budget deficit to increase, which brought pressure on the current account. They did not raise the interest rate for two years.

“For two years, Sri Lanka kept the exchange rate unchanged, which means they were using their reserves to keep the exchange rate at the desired level. It finally resulted in a large current account deficit and their foreign exchange reserves being depleted. The only way to plug the current account is to throw dollars into the market which eroded the reserves; finally the exchange rate went up by 50-60pc overnight.”

Sri Lanka had not managed its public debt, which kept increasing for two years, he added. “Their reserves fell sharply, the interest rate suddenly went up in a panic, and the economy failed to meet the basic requirements. The public debt became unmanageable.”.

By contrast, Pakistan had been extremely cautious after Covid-19, with the SBP providing stimulus while the government was more targeted.”

“The public debt increased by up to 10pc in most countries, but in Pakistan it fell,” said the governor, with public debt to GDP falling from 77% in 2019 to 71% today. “Indicators are much better than in most of the countries hit by Covid. Our growth was one of the best among the Covid-hit economies. Our economy recovered quickly, and for the last two years, growth has been about 6%.”

Separately, the SBP announced that it was allowing development finance institutions (DFIs) to participate in open market operations (OMOs), adding that it believed the approval would assist DFIs in their liquidity management.

As part of its monetary policy implementation, the SBP conducts OMOs to keep the money market overnight repo rate close to the central bank’s target "policy rate" introduced under the revised Interest Rate Corridor Framework. All scheduled banks and primary dealers are allowed to participate in these OMOs; however, the SBP may also conduct special OMOs in which only primary dealers are eligible to participate.

Unqork to revamp Triterras trade finance platform

Trade finance fintech Triterras Inc has announced a partnership with Unqork, a no-code enterprise application platform, to further digitise global trade finance.

Unqork will be used to enhance the end-to-end trading lifecycle of Triterras’ Kratos platform, one of the world’s largest trading and trade finance platforms. By incorporating Unqork’s simple ‘drag and drop’ interface, the fintech company will be able to offer better efficiency and improve outcomes for both lenders and traders.

Triterras sais that it will kick start its work with Unqork by building new client onboarding processes on its Kratos platform. Client onboarding is an integral undertaking for all financial service institutions, yet rigid, fluctuating protocols have often hindered digital adoption. Through Unqork, it will be able to quickly develop client onboarding applications with more flexibility as industry regulations change for a seamless customer experience.

Customer onboarding will be just the first step in Triterras’ larger digital transformation initiative for the Kratos Platform. In time, the company plans to migrate risk and fraud mitigation, trade digitisation, transaction tracking and more, using Unqork.

“By leveraging Unqork’s no-code platform, Triterras plans to accelerate the way SME clients and lenders are able to transact online,” said Sri Vasireddy, Chief Technology Officer, Triterras.“Our business model is to bring new trade finance lending to underserved or underbanked market segments. Our partnership with Unqork will allow us to further our mission to provide tech-forward lending solutions that are accessible to the world of micro-lending.”

“Unqork has proven experience accelerating our customers’ time-to-market with our Codeless Architecture approach, enabling the delivery of premium, future-proof applications in record time,” said Matt Singleton, Head of Financial Services, Unqork.

Invesco Real Estate launches first European debt fund

Invesco Real Estate has announced the launch of its first real estate debt fund in Europe.

The fund, which will prioritise lending on sustainable assets with prime environmental, social and governance (ESG) profiles, has already completed its inaugural transaction: a senior loan facility to finance a pipeline of six French and three Spanish logistics facilities, all pre-let to one of the world’s largest online retailers.

The Invesco Commercial Mortgage Income – Fonds Commun de Placement -Europe Reserved Alternative Investment Fund (FCP RAIF) (CMI Europe) is a Luxembourg-domiciled, open-ended fund with a €1 billion (US$1.07bn) initial fundraising target. It is primarily backed by insurance capital demonstrating the strategy’s attractiveness for insurance firms’ Solvency II requirements.

The fund aims to offer institutional investors a stable, high yielding income stream and attractive risk-adjusted returns through originating loans collateralised with high quality real estate across the UK and Europe.

Including this loan, the firm has now committed to €150 million of loans across the UK and Europe and expect to commit significant further capital prior to the end of 2022.

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