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A game with a con-man

Pavel Latushka: Deputy Head of the United Transitional Cabinet of Belarus, Head of the National Anti-Crisis Management, Ambassador

Head of NAM Pavel Latushko talks about how Lukashenko once again deceived those who trusted him. 

NAM addressed the topic of Eurobonds in 2021. During the spring that year, after studying the Prospectus* of the bond issuance, we concluded that the Ministry of Finance had engaged in forgery by failing to disclose crucial information regarding the risks known to them at the time and distorting details about the use of funds.

We shared this information with the major bondholders at that time. At the time, the bonds were being sold at a discount of 10-20% of their nominal value, and the early sale of securities was unfavorable for holders (even though these are very low amounts compared to the total volumes, sales at a loss affect the performance of managers).

However, several large institutional holders, particularly in the Nordic region, heeded our advice and sold at a loss. Some American funds chose not to do so, hoping for full repayment. This situation exemplifies a classic scenario. Those who sold with a 20% loss are likely relieved that they exited with a smaller loss compared to those who sold in 2022, facing a 70% loss. In 2021, we even joked that it would be profitable for the Ministry of Finance to repurchase bonds ahead of schedule at a discount, thereby paying less than the funds received, effectively issuing bonds at a negative interest rate. Such a financial operation would become a textbook example.

The story of 2022 is even more ironic. As the dumping of these securities started, holders were eager to salvage at least some value, but there were few buyers, mainly speculators from jurisdictions with few moral restrictions. The buyers' strategy was to purchase at a discount of 50-70% and wait for the issuer to buy back the bonds at face value after a year, thereby earning a return of 100-300% per annum. The crucial factor was confidence in the issuer's commitment to the buyback. Surprisingly, Belarusian businessmen fell for this trap. Despite having paid ransoms for their freedom after coercion by the KGB and the DFR, they should have understood the value of state promises. However, their greed played a cruel trick on them. In a typical situation, bond issuers are unaware of the identity of bondholders since the lists of holders and sales transactions are stored by depositories, which act as custodians of all resale information.

Dividends are typically distributed by the paying agent, in this case, the American Citigroup. Our businessmen hoped that this information would not be accessible in Belarus. However, due to sanctions, Citigroup had to relinquish its role as depository and paying agent, leading to the transfer of this information either to another depository or the Ministry of Finance, which had to retrieve primary information from the holders. The first option is supported by the fact that the Ministry of Finance is willing to pay only those holders who bought bonds before September 6, 2022, the date when Citigroup managed the register. In one way or another, all the information ended up in the hands of the Ministry of Finance. When the Ministry realized who the holders were, it followed its usual tradition, and many of the holders didn’t get any payment in the end, even in rubles.

Of course, it is possible to sue the Ministry of Finance in court, either in Belarus or in the London International Court of Arbitration as indicated in the issue documentation. The outcome of our court can be easily predicted. The London court will likely rule in favor of the plaintiffs since the Ministry of Finance's decision not to make payments, even in rubles, is highly controversial. Since then, the Ministry of Finance has not only failed to pay the coupon (interest on the bonds), but also missed the redemption of the principal amount that was due in February 2023.

Even if the Ministry of Finance lacked the technical ability to make payments in dollars, they could have certainly paid in rubles. The default is evident here, as is the issuer's lack of willingness to rectify the situation. However, as we know, in our country, the DFR and the KGB have enough resources to persuade almost any businessman that it is better to accept losses than to lose their entire business and even their freedom. The Russians have a slightly better position, but even if the London court rules in their favor, converting that decision into actual money in today's political climate will be quite challenging. This serves as another lesson for those who play with con-men.


*A prospectus in the context of a sovereign Eurobond placement is an official document prepared by the issuer (in this case, the state) for potential investors. This document contains all the necessary information about the bond issue, including the following:

  •  Details about the issue: volume of issue, face value, interest rate, maturity period and other   features of the issue;

  • Financial information about the issuer: economic condition of the country, financial indicators, credit ratings, etc.;

  • Risks: a description of the potential risks associated with an investment in these bonds;

  • Purposes of placement: for what purposes are the funds being collected? (For example, financing the state budget, infrastructure projects.);

  • Legal information: legal aspects related to the issuance of bonds.

This document is necessary to ensure transparency and investor awareness, assisting them in making informed decisions regarding the purchase of Eurobonds.




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