Sixth round of EU sanctions against Russia: NSD in focus

On 25 February, when settlements were shut down, Euroclear blocked ₽1.8 trln, or about $27 bln, in international assets held by Russian residents (mostly shares).Obviously this amount is less now given negative global market performance and forced selling due to margin calls and other financing needs.Russian exposure in local equity and fixed income of non-residents stuck at the NSD exceed $85 bln before revaluation, of which $48 bln are equities and the rest are bonds, mainly OFZ worth $38 bln (2 700 bln roubles).So both type of investors are stuck within their assets for undefined time period.

Holders of Russian Eurobonds is a different story for now given that its overseas holding of non-residents.Our assumption is that most of the foreign asset holders at NSD are local banks, assets management companies (MC), private pension funds (PPF) and individuals. Lifting of sanctions is a very long process, and among individuals, holders of structured notes and international shares bought on the over the counter (OTC) market are primarily affected.The EU is also considering asset confiscation.This week, following sanctions against the NSD, euro assets likely will not be used as collateral by local brokers, and after the US Treasury designates the NSD, which we expect to happen soon, dollar assets would be eligible as collateral.As for the restrictions on the Finance Ministry’s payments on Russian foreign debt, we think there are still loopholes that allow transactions through non-designated Russian banks. There is a high probability that payments to Eurobond holders at the NSD and Euroclear will be made in roubles, in line with the scheme previously outlined by the Ministry of Finance, and subsequently converted into hard.