Sovcombank PAO, the country's third largest privately owned lender, said the exchange would enable the eurobond holders to receive payments directly in Russia without using international payment systems such as SWIFT.
The bank said on its website that it made the coupon payments in rubles on Thursday, but only to bondholders registered with accounts at Russia's National Settlement Depository.
The lender said it was not possible to make payments through its bond issuer Sovcom Capital DAC, its Ireland-based special purpose vehicle. It added that it is not clear if it will be possible to make payments in the future due to conflicts between Russian and foreign law.
"Sovcombank is registering a new issue of local subordinated bonds and will offer holders of eurobonds to exchange them for new Russian bonds," the lender said on its website. "This will enable bondholders to receive payments directly in Russia, bypassing the international payment infrastructure."
The bank temporarily stopped interest payments on $1.2 billion worth of eurobonds earlier this month after it was blocked by Western sanctions and the Kremlin's own capital controls. The bank was due to make the scheduled interest payments on four dollar-denominated eurobonds issued by Sovcom Capital.
The European Commission has blocked the privately owned bank from using the SWIFT global interbank transfer messaging system since March, restricting its ability to conduct international banking operations. The Belgium-based network allows banks to make rapid international payments across borders for financial transactions and trade financing.
The U.S. Treasury has terminated the bank's ability to make dollar debt payments from American bank accounts after Russia's major financial institutions were sanctioned in February because of the country's invasion of Ukraine. The U.S. government said Russian banks process about $46 billion in foreign exchange transactions daily, with 80% of that in dollars.
It was the first Russian bank to miss payments on foreign currency bonds since sanctions were slapped on Russia after its invasion of Ukraine.
The bonds are listed with international depositories, including Euroclear and Clearstream. The bank said it is continuing to work with international regulators to pay coupons to bondholders, but did not specify when this would be done.
--Additional reporting by Najiyya Budaly and Daniel Wilson. Editing by Joe Millis.
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