Belarus debtholders dispute frozen $800mn bond at Euroclear

Euroclear is locked in a dispute with holders of Belarusian government debt who say the securities depository is barring them from selling a defaulted $800mn bond.

Bondholders are pushing Euroclear to settle trades of the sanctioned country’s debts, according to people with knowledge of the matter. Belgium-based Euroclear has only labelled the 2023 bond as “matured”, rather than “defaulted”, the people said. This means the bonds are in effect stuck in limbo and this prevents debtholders from selling on their claims.

The row underscores the awkward position that Euroclear has found itself in over how to apply western sanctions on assets linked to Russia and its allies over the invasion of Ukraine.

The settlement house is one of the pillars of the global capital market, tracking and finalising millions of securities trades a day. It has been withholding payments to and from sanctioned entities in Russia and elsewhere, and has earned more than €3bn this year to October in income related to frozen Russian assets. EU leaders plan to spend the money on helping the recovery in Ukraine.

Credit rating agencies last year declared Belarus in default on its sovereign debt, including an $800mn bond that matured in February, after US and EU bans stopped one of Russia’s closest allies from paying debt holders.

Belarus has ardently backed Russia’s invasion of Ukraine, and its president Alexander Lukashenko is a close ally of Russian president Vladimir Putin. Lukashenko provided refuge to Russian warlord Yevgeny Prigozhin, and Putin sent tactical nuclear warheads to Minsk earlier this year.

The EU last year imposed sanctions including limiting financial inflows from Belarus to the bloc and banned several Belarusian banks from the Swift payments messaging system.

But Euroclear has not marked the debt as defaulted, the people said, a necessary step that allows the debt to be turned into a claim on an eventual restructuring of Belarus’ debt. That means holders cannot sell their assets to distressed debt investors, who hope to make money from a debt resolution plan.

Bondholders argue that, unlike with Russia, the sanctions on Belarus do not prevent money being repaid to them or the bonds being marked as defaulted.

“The Belarusian central bank does not face the exact same sanctions that the Russian central bank does,” said Maximilian Hess, fellow at the Foreign Policy Research Institute. “They are not barred from sending dollar transactions in the same way that the Russian central bank is. Belarus is unequivocally in default,” he added.

Euroclear declined to comment. Belarus’s finance ministry did not respond to a request for comment.

“Euroclear is being extremely cautious and they’re not deeming this bond to be in default,” said one bondholder, adding that “there is no sanction that prohibits Belarus from making payments on dollars through the clearing system.

“The fact that these bonds are deemed matured in the Euroclear system means they cannot be settled, they’re permanently blocked, there’s no market for these bonds,” the bondholder added.

Investors in Belarus’s 2023 bonds include Eurizon, the asset management unit of Italian banking group Intesa Sanpaolo, the State of Wisconsin Investment Board and Philadelphia-based Hartford Funds, according to Bloomberg data. They declined to comment. 

Rating agencies Moody’s, S&P and Fitch have all declared Belarus in default. “Belarus will remain in default on its outstanding Eurobonds as long as it supports Russia’s aggression of Ukraine and the sanctions remain in place,” Moody’s said in June. 

“It’s a question of cautious overcompliance,” said another person with knowledge of the matter, adding: “It’s directly impacting holders who want to sell . . . it’s simply not the case that bonds should be frozen there.”

Additional reporting by Raphael Minder in Warsaw