Presidential Decree No. 767: key changes

Decree No. 767 amends Decree No. 95 by introducing special requirements for making payments under Eurobonds and bonds, which, at their placement, were paid for by Eurobonds or cash that was earmarked for purchasing Eurobonds (replacement bonds). 

Payments under such bonds are considered a due discharge of obligations of Russian debtors under financial instruments. A special payment procedure applies if persons from unfriendly states were involved in the holding of such bonds. 

If, post-March 3, 2023 (i.e., after the enactment of Decree No. 138), Eurobonds or replacement bonds were owned by a person from an unfriendly state (who exercised rights under such bonds), then payments to residents, non-residents from friendly states and CFCs are to be made to type “C” accounts. 

An alternative payment mechanism might be permitted for debtors that are not credit institutions subject to a permit granted by the Government Commission on Monitoring Foreign Investments in the Russian Federation (the Commission). Previously, according to Decree No. 95, such clearances were given by the Russian Ministry of Finance upon approval from the Bank of Russia.

The amendments to Decree No. 95 do not apply to the following: 

• Eurobonds and replacement bonds purchased in an organized market 
• Eurobonds and replacement bonds purchased before 1 September 2024 from a holder (trustee) that is not a person from an unfriendly state and whose rights to securities were registered with a Russian custodian 
• Transactions with Eurobonds and replacement bonds that were authorized in accordance with other Presidential Decrees (Decree No. 81 On Additional Temporary Economic Measures for Ensuring Financial Stability of the Russian Federation (Decree No. 81) and Decree No. 138)

Other changes to Decree No. 95 were introduced by Decree No. 767: 

• Permits of authorized bodies (the Commission or the Bank of Russia) for exemptions from payment requirements established by Decree No. 95 may specify the terms of performance of payment obligations where necessary. 
• The Russian Government must determine and approve the procedure for provision of exemptions from Decree No. 95 by the Commission.
• Revisions were made to the procedure of settlement by Russian debtors of debts under securities that were assigned by persons from unfriendly states after 1 March 2022. Exemptions from Decree No. 95 can be applied to payments under such securities (except Eurobonds and replacement bonds) if: 
  • Permits were granted for transactions with such securities under other Presidential Decrees (Decree No. 81, Decree No. 95, Decree No. 138, etc.) 
  • A Russian credit organization received (purchased) such securities as a result of repayment of a loan backed by these securities, if the loan was granted and the pledge was registered before 3 March 2023 
  • Russian credit organizations under foreign sanctions exercise their rights under Russian state bonds resulting from forced transfer of rights to such bonds from an account held with a foreign custodian to an account opened with a Russian custodian
  • Rights to securities were subject to a forced transfer to accounts with Russian custodians pursuant to Articles 5-5.5 of Federal Law No. 319-FZ of 14 July 2022 On Amendments to Certain Legislative Acts of the Russian Federation 

Decree No. 767 also changed the procedure of transactions with Eurobonds and replacement bonds and established a requirement for their separate accounting. 

Pursuant to amended para. 2 of Decree No. 138, transactions may be executed with Eurobonds and replacement bonds, which imply transfer of ownership, placement in trust or pledge, subject to permits from the Commission and the Bank of Russia.

Russian custodians must account for such securities separately, if persons from unfriendly states were involved in holding these bonds after 3 March 2023 (Decree No. 138, para. 7 (1)). The requirement does not apply to Eurobonds and replacement bonds that were held by a CFC. Nor does it apply to the following: 

• Eurobonds and replacement bonds that were traded under a permit of the Commission or the Bank of Russia 
• Eurobonds and replacement bonds purchased in an organized market
• Eurobonds and replacement bonds purchased before 1 September 2024 from a holder (trustee) that is not a person from an unfriendly state and whose rights to securities were registered with a Russian custodian

The Board of Directors of the Bank of Russia will determine the separate accounting requirements for securities under the new regulations.

Amendments to Decree No. 95 and Decree No. 138 reflect the stance of the Bank of Russia on the inadmissibility of circumventing restrictions on transactions with securities held by foreigners. Earlier, the Bank of Russia unofficially gave instructions to restrict replacement of Eurobonds purchased at a discount from persons from unfriendly states. The important point is that securities that were held by persons from unfriendly states before 3 March 2023 are not to be accounted for separately.

From 9 September 2024, the Commission is authorized to issue permits to Russian companies (excluding credit and non-credit financial institutions) for the payment of dividends to persons from unfriendly states (earlier, permits were issued by the Russian Ministry of Finance). Such permits may also establish the terms of dividend payments. 

The Russian Government must also determine and approve the procedure for the Commission to provide exemptions from Decree No. 254 (para. 3(2) thereof). 

We believe that amendments to Decree No. 254 introduced by Decree No. 767 may create a legal framework for developing a detailed procedure of issuing permits to Russian companies for the payment of dividends to persons from unfriendly states. The Russian Government, therefore, may either determine a separate dividend payment procedure or amend Government Decree No. 295 of 6 March 2022 regulating transactions with persons from unfriendly states and dividend payments. 

Since the beginning of 2024, payments of dividends to persons from unfriendly states have been hampered by Decree No. 254. The changes described above will resolve legal limbo and allow resuming payments of dividends after the Russian Government adopts the relevant subordinate acts.

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The B1 team has extensive experience in advising both Russian and foreign clients on obtaining permits from state authorities for transactions and making payments under the countermeasures legislation. Our experts are ready to provide comprehensive guidance at all stages of the process, including the preparation of the required documents and consulting on the most complex regulatory matters. 

• Georgy Kovalenko, Partner, Legal Services
• Maria Frolova, Partner, Tax, Law and Business Support
• Marina Belyakova, Partner, Energy & Resources Tax Leader
• Igor Oreshin, Senior, Legal Services