the republic OF BELARUS HAS A B+ LONG-TERM CREDIT RATING, OUTLOOK DEVELOPING; THE BOND ISSUE (RU000A1052U9) OF THE REPUBLIC OF BELARUS HAS A B+ CREDIT RATING UNDER THE INTERNATIONAL SCALE AND A BBB-(RU) CREDIT RATING UNDER THE NATIONAL SCALE
By Resolution of the Council of Ministers of the Republic of Belarus and the National Bank of the Republic of Belarus No. 583/16 dated September 4, 2023 (hereinafter, the Resolution), amendments were made to Resolutions of the Council of Ministers of the Republic of Belarus and the National Bank of the Republic of Belarus No. 212/10 dated April 6, 2022 and No. 643/20 dated September 26, 2022. The following possibilities were clarified for holders of Eurobonds of the Republic of Belarus:
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Exchange of Eurobonds for domestic government bonds subject to cancellation of the Eurobonds;
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Repurchase of Eurobonds at 30% of their par value for the purpose of their subsequent cancellation;
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Receiving payments for Eurobonds in Belarusian rubles.
The Resolution covers five Eurobond issues: Belarus-2023 (XS1634369067), Belarus-2026 (XS2120091991), Belarus-2027 (XS1634369224), Belarus-2030 (XS1760804184), and Belarus-2031 (XS2120882183).
According to the Ministry of Finance of the Republic of Belarus (hereinafter, the Ministry of Finance), it fully transfers the equivalent of payments for the Eurobonds in Belarusian rubles to the accounts of the authorized bank according to the procedure established by Resolution No. 212/10 dated April 6, 2022.
In ACRA’s opinion, the exchange of Eurobonds for domestic bonds is complicated due to the absence of official relationships with the payment agent and foreign depositories.
The repurchase of Eurobonds at a price below their par value is not an option for fulfilling obligations equivalent to the terms of the Eurobond issues.
According to the Resolution, payment in Belarusian rubles will be available to a limited group of bondholders, namely, those who:
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Acquired Eurobonds earlier than September 6, 2022 (this date is due to the termination of the functions of the registrar, financial, payment and transfer agent of Citigroup Global Markets Europe AG and Citibank, N.A., London Branch);
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Are not residents of unfriendly countries specified in the appendix to Resolution of the Council of Ministers of the Republic of Belarus No. 209 dated April 6, 2022;
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Can ensure the transfer of Eurobonds to the Ministry of Finance’s account in a trusted depositary (non-resident depositary), i.e., possess correspondent relations with the Republican Central Securities Depository and have entered into an agreement on making payments with the Ministry of Finance.
Therefore, the proposed options for fulfillment of obligations significantly limit the group of investors who can receive payments in Belarusian rubles.
In addition, the Resolution envisages a change to the schedules for transferring interest income payments on Eurobonds to the final holders compared to the schedules set by the issuance documentation — coupon payments for the issues Belarus-2026 (XS2120091991), Belarus-2027 (XS1634369224), Belarus-2030 (XS1760804184), and Belarus-2031 (XS2120882183) will be transferred to the holders upon redemption of Eurobonds.
In ACRA’s opinion, changes to payment conditions are not related to a deterioration in the creditworthiness of the Republic of Belarus.
According to the Ministry of Finance, obligations for the other government bonds of the Republic of Belarus (domestic issues and bonds denominated in Russian rubles) are performed on time and to the extent specified by issuance documentation. The Resolution does not cover the Russian ruble-denominated bond issue of the Republic of Belarus (RU000A1052U9), and therefore, according to ACRA’s estimates, it does not adversely impact the standing of the holders of these bonds.
The current B+ credit rating of the Republic of Belarus takes into account uncertainty regarding the stability of the country’s economy. The prices for the country’s main exports have declined this year, volumes of exports of these products lag behind pre-crisis volumes, and transportation costs have grown. The IT sector, one of the drivers of the economy in the past, continues to decline. Consumer imports increased amid growth in lending to households. Inventories remain close to maximum levels. Positive factors include the recovery of industry, growth of investments, decline in inflation, reduction of external debt and maintaining reserves in the context of continued payments for external public debt in national currency. Ongoing integration with Russia, including trade, is a key factor supporting the country’s economic recovery.
In ACRA’s opinion, the Developing outlook reflects the current unsettled issue of Eurobond payments. ACRA continues to monitor the transfer of payments for the country’s Eurobonds to investors. If significant restrictions remain in relation to the group of investors who can receive payments in Belarusian rubles, as well as in case of maintaining additional restrictions on the transfer of coupon payments to holders, ACRA will assess the impact of the current situation on the credit ratings of the Republic of Belarus, taking into account all available information.
