Russia seeks to close loopholes letting foreigners divest debt holdings

·2-min read
A Russian flag flies over Russian Central Bank headquarters in Moscow

By Elena Fabrichnaya

MOSCOW (Reuters) - Russia's central bank said on Tuesday it would close loopholes allowing foreign investors from countries that have imposed sanctions against Moscow to divest Russian asset holdings.

Foreign investors from so-called "unfriendly" countries - those that joined in with sanctions against Russia over its actions in Ukraine - have been offloading billions of roubles worth of local debt holdings, selling the government's OFZ bonds at a steep discount, two financial market sources told Reuters in January.

Moscow has imposed restrictions on foreigners' holdings in response to sweeping Western sanctions, leaving many non-resident investors unable to sell or receive interest payments on certain assets.

But in November 2022, the central bank said 1.36 trillion roubles ($17.5 billion) was "localised" by non-residents disposing of securities and transferring them to Russian investors at a hefty discount, with 94.4% of that in the form of OFZ bonds.

Central Bank Deputy Chairman Philip Gabunia told a financial forum that the bank considered it wrong to allow non-residents to reduce their Russian asset holdings while local investors have funds frozen abroad.

"If we find new loopholes which were not foreseen (by decrees), we will still close them," Gabunia said.

Russia's finance ministry this month said it would levy a 20% contribution to the federal budget on sales of OFZ bonds and holdings in Russian companies previously purchased from foreign investors.

Speaking at the same conference on Tuesday, Bank of Russia Governor Elvira Nabiullina described the scheme as a "circumvention" of a "reciprocal asset freeze".

The central bank and finance ministry are discussing ways of "localising" securities stuck in Western financial infrastrucutre, a central bank official said on Monday. Russia has already encouraged companies to issue 'replacement bonds' in roubles to substitute those issued in other, now blocked currencies.

($1 = 77.7205 roubles)

(Reporting by Elena Fabrichnaya; Writing by Alexander Marrow, Editing by William Maclean)