Replacement bond

Replacement bond is a local bond issued in the territory of the risk country of the issuer, which for some reason has lost the ability to pay the eurobonds’ debt.
The parameters of the replacement bond must be similar to those of the Eurobond that is "replaced", in particular: by maturity, coupon %; cash flow (payment schedule); face value.

The main prerequisite for the creation of such securities in the Russian Federation was the sanctions imposed by the world depositories Euroclear Bank and Clearstream Banking S.A., in the form of limiting the ability of issuers to make payments on the debt of their bonds abroad of the risk country.
Access to such bonds appears first of all for holders of Eurobonds of sub-sanctioned issuers - the process is simple in that the holder just needs to leave an application for the exchange of an existing Eurobond in the portfolio for a created, replacing one.

The advantages of replacement bonds are:
1) the absence of sanctions risks for the holder;
2) the possibility of tax preferences for the holder, since the taxation of securities occurs according to the law of the country of risk;
3) calculated in currency coupon yield;
4) preferential terms for the issue (without documents);

Disadvantages of replacement bonds can be highlighted as follows:
1) payment currency = currency of the country of risk, depending on the exchange rate of which the actual income can change greatly over time;
2) low liquidity in the secondary market.

Examples of replacement bonds:
1) Gazprom Capital, ZO23-1-E 4-02-36400-R-003P and Gazprom, 3.125% 17nov2023, EUR (39);
2) Gazprom Capital, ZO24-1-E 4-04-36400-R-003P and Gazprom, 2.25% 22nov2024, EUR (44);
3) Gazprom Capital, ZO24-1-F 4-08-36400-R and Gazprom, 4.25% 6apr2024, GBP(42)