Russian Corporate Bond Market

Federal Law on Securities Market

The issuance and circulation of corporate bonds in Russia is governed by the Federal Law on the Securities Market (Federalny Zakon o Rynke Tsennykh Bumag, No. 39-FZ of 22 April 1996). The Law defines a bond as an issue-grade debt security (emissionnaya dolgovaya tsenny bumaga) that certifies the right of its holder to receive from the issuer the principal amount of the bond and interest thereon within the specified term. The Law establishes the regulatory framework for: bond issuance procedures; disclosure requirements; registration of bond prospectuses; the activities of underwriters (underraytery); and the rights of bondholders.

The Central Bank of the Russian Federation (Bank of Russia) acts as the principal regulator of the securities market under the Federal Law on the Central Bank of the Russian Federation (No. 86-FZ of 2002). The Bank of Russia’s powers include: (1) approval of securities issuance standards; (2) registration of bond prospectuses; (3) supervision of professional securities market participants; (4) establishment of disclosure requirements; and (5) determination of qualification requirements for securities market professionals. The Bank of Russia’s Basic Standards for Bond Issuance (approved by Order No. 546-P of 2023) set out the procedural requirements for bond offerings.

Bond Issuance Procedure

The procedure for issuing corporate bonds is governed by Articles 24–27.2 of 39-FZ and the Bank of Russia Regulation on Securities Issuance (No. 358-P of 2016). The issuance process involves: (1) decision to issue (reshenie o vypuske) — approved by the issuer’s authorised management body (board of directors or general meeting of shareholders); (2) state registration of the bond prospectus (gosudarstvennaya registratsiya prospekta tsennykh bumag) with the Bank of Russia, unless an exemption applies; (3) placement of the bonds (razmeshchenie) through public offering or private placement; (4) registration of the placement report (otchyot ob itogakh vypuska); and (5) listing on a stock exchange, if applicable.

The registration procedure requires submission of: the decision to issue; the bond prospectus (containing information on the issuer, its financial condition, the terms of the bonds, the use of proceeds, and risk factors); the issuer’s charter and registration documents; financial statements for the last three years; and a report on the issuer’s compliance with corporate governance standards. The Bank of Russia reviews the application within 20 working days. The registration is valid for one year, during which placement must be completed. Exemptions from registration apply to: bonds issued by the Russian Federation, constituent entities, or municipalities; bonds placed by private placement (qualified investors only); and exchange-traded bonds meeting specific criteria.

Structured Bonds

Structured bonds (strukturirovannye obligatsii), also known as structured financial products, are regulated by the Federal Law on the Securities Market amendments (2018) and the Bank of Russia Ordinance on Structured Bonds (No. 4825-U of 2019). A structured bond is defined as a bond providing for the right to receive interest income or principal repayment whose amount depends on the value of an underlying asset, index, or other reference parameter, including derivatives. The regulatory framework requires: (1) mandatory disclosure of the structure, calculation methodology, and risk factors; (2) a minimum nominal value of 1 million RUB (limiting the product to qualified investors); (3) prohibition on early redemption by the issuer without the bondholder’s consent; and (4) special requirements for the underlying asset’s liquidity and valuation.

The Bank of Russia has issued guidance on the marketing of structured bonds, requiring that promotional materials clearly indicate: that structured bonds do not guarantee return of principal; the conditions under which the investor may lose part or all of the investment; and that the product is suitable only for qualified investors. Enforcement actions have been taken against banks and brokerages for mis-selling structured bonds to retail clients.

Exchange-Traded Bonds (Birzhevye Obligatsii)

Exchange-traded bonds (birzhevye obligatsii) represent a simplified bond issuance regime introduced by the Federal Law on the Securities Market amendments of 2011. Exchange-traded bonds are issued without state registration of the prospectus, subject to: (1) admission to listing on a stock exchange (MOEX — Moscow Exchange); (2) compliance with the exchange’s listing rules; (3) registration of the bond programme (programma birzhevykh obligatsy) with the Bank of Russia; and (4) disclosure of information in accordance with the exchange’s rules. The bond programme is registered for up to five years and may cover multiple bond issues within the programme limits.

The Moscow Exchange Listing Rules (approved by the Bank of Russia) set out three listing levels: (1) Level 1 (highest) — for issuers meeting the most stringent requirements for capitalisation, profitability, corporate governance, and disclosure; (2) Level 2 — for issuers meeting moderate requirements; (3) Level 3 — for issuers meeting minimum requirements. Exchange-traded bonds may be placed through open subscription (with prospectus) or closed subscription (qualified investors only). The exchange-traded bond regime has become the dominant form of corporate bond issuance, accounting for approximately 80% of new issues by volume since 2020.

Bond Substitution (Zameshchenie Obligatsiy)

The bond substitution mechanism (zameshchenie obligatsiy) was introduced by Federal Law No. 190-FZ of 14 July 2022 in response to the imposition of sanctions on Russian issuers and the resulting difficulties in servicing foreign-currency bonds. The Law permits issuers of Eurobonds and other foreign-currency bonds to substitute them with new Russian-law bonds (replacement bonds, zameshchayushchie obligatsii) issued on identical financial terms. The substitution is voluntary for bondholders and is effected through an exchange offer (obmen). The replacement bonds are denominated in Russian roubles or foreign currency at the issuer’s option and are listed on the Moscow Exchange.

The substitution mechanism has been used by major Russian issuers, including Gazprom, Rosneft, Lukoil, and Norilsk Nickel, to restructure approximately 50 billion USD of Eurobonds. The mechanism provides: (1) exemption from registration requirements for the replacement bonds; (2) continuation of the same interest rate, maturity, and covenants; (3) settlement through Russian depositories (NSD — National Settlement Depository) rather than Euroclear or Clearstream; and (4) application of Russian law to the replacement bonds. Bondholders who decline the exchange offer retain their original bonds but may face difficulties in receiving payments due to sanctions on Euroclear.

Default Procedure

The default procedure for corporate bonds is governed by the Federal Law on Insolvency (Bankruptcy) (No. 127-FZ of 2002) and the Bank of Russia Regulation on Bond Default (No. 557-P of 2020). A bond default (defolt) occurs where the issuer fails to make a scheduled interest payment or principal repayment within 10 business days of the due date. Upon default, the issuer must: (1) notify the Bank of Russia, the exchange, and bondholders within three business days; (2) publish a notice of default on the issuer’s website and through the Interfax information disclosure system; and (3) convene a bondholders’ meeting within 30 days.

The bondholders’ meeting (sobranie vladtsev obligatsiy) may: (1) demand accelerated repayment (dosrochnoe pogashenie) of the bonds; (2) appoint a bondholders’ representative (predstavitel vladtsev obligatsiy); (3) agree to a restructuring plan proposed by the issuer; or (4) initiate insolvency proceedings against the issuer. The bondholders’ representative, introduced by amendments to 39-FZ in 2020, must be a professional securities market participant and acts as a fiduciary for bondholders in negotiations with the issuer and in insolvency proceedings. The representative’s fees are paid by the issuer.