Fitch on Tuesday placed Euroclear Bank’s ratings on “rating watch negative”, citing the potential for increased legal and liquidity risks from the European Union’s plans to use immobilised Russian assets for a reparations loan to Ukraine.
Belgium-based Euroclear did not respond immediately to a request for comment when contacted outside business hours.
The EU plans to use up to 165 billion euros ($193.84 billion) of Russian central bank assets frozen in Europe, without confiscating them, as it searches for a way to finance Ukraine’s defense and budget needs in 2026 and 2027.
Euroclear, the Belgian Central Securities Depository, was holding bonds for the Russian central bank at the onset of Russia’s invasion of Ukraine. The bonds have since matured and the resulting cash is stuck in Euroclear due to EU’s sanctions against the Kremlin.
This cash is currently being invested at the European Central Bank in overnight deposits.
The EU plans for Euroclear to instead invest in zero-coupon bonds issued by the European Commission. The EU would then use the cash to issue a “reparations loan” to Ukraine. The loan would only be repaid by Ukraine once it receives war reparations from Russia in a peace agreement, effectively allowing Ukraine to spend the money now, rather than waiting until Moscow pays.
Fitch warned that insufficient legal and liquidity protections for such a plan could likely create a maturity mismatch in Euroclear’s balance sheet if liabilities of the Russian central bank become payable.
Fitch said it would aim to resolve the action once there was sufficient clarity on the policymaking process and implementation of the reparations loan, which could be decided at an EU summit being held on Thursday and Friday.
The move affects Euroclear Bank and Euroclear Holding’s long-term issuer default ratings of “AA”, short-term IDRs of “F1+”, viability ratings of “aa”, and debt ratings, Fitch said.
($1 = 0.8512 euros)
(Reporting by Rajveer Singh Pardesi in Bengaluru)
