Default looms as Russia hits deadline for dollar bond payments

Russia will repay its debt for the first time since 1998 if it tries to make interest payments on its ruble-denominated bonds on Wednesday, the rating agency Fitch said.

Investors are awaiting $ 117 million in coupon payments on two Russian bonds, the first of its kind since Western nations responded to Vladimir Putin’s invasion of Ukraine with unprecedented financial sanctions. The deadline marks a crucial test of Moscow’s willingness and ability to continue to serve its external debt.

On March 5, Putin said creditors in “unfriendly” countries that imposed sanctions should be paid in rubles and not in foreign currency. But such a “forced denomination” of coupon payments would indicate “a default or default-like process has begun,” Fitch said. The company will further downgrade Russia’s credit rating to a “limited default” if payment is not made in dollars within the 30-day grace period following Wednesday’s deadline.

Some of Russia’s dollar and euro bonds contain a contradiction clause that allows for a refund in rubles, but the two bonds with repayable coupons on Wednesday are not between them.

The Russian Ministry of Finance said on Monday that it had ordered the payments to be made as usual, but said Western sanctions could prevent the money from reaching some foreign investors. Finance Minister Anton Silwanov said sanctions on the freeze on some Russian central bank assets were an attempt to force the country to make an “artificial default” on $ 38.5 billion in foreign currency bonds.

“Russia is a powerful, self-sufficient country, so I do not believe in a default. There is no condition or basis for talking about it. Russia will calmly fulfill all its obligations,” said Anatoly Aksakov, head of the finance committee in the lower house of the Russian parliament.

“Do we have to fulfill our obligations when our so-called partners do not fulfill theirs? It depends on the management and the central bank – they have to decide,” Axakov added, according to state news network RIA Novosti.

Line chart of bond price with coupon payments due March 16 (cents to dollar) showing Russian debt transactions in deep distress levels

Western investors have been organizing themselves into default since the imposition of U.S. and European sanctions against the Russian central bank last month. -20 cents. Western investors, who held around $ 170 billion in Russian assets before the invasion, have already suffered heavy losses.

Russia’s external debt default – of which about $ 20 billion was in foreign hands before the invasion – will also raise questions about the country’s larger debt pile, and about $ 90 billion in foreign currency bonds issued by Russian companies.

The Russian government has already said that the last coupon payment on these local bonds will not reach foreign holders, citing the central bank’s ban on sending foreign currency abroad. However, some Russian companies have continued to make interest payments and repay maturing bonds. The surprise Of many investors.

Russia’s last sovereign default in 1998 led to a financial crisis and led to the near-collapse of the American hedge fund Long Term Capital Management. Subsequently, the government re-executed the ruble debts and the dollar-denominated debt from the Soviet era, but continued to make payments on international bonds issued since the collapse of the Soviet Union. The last comprehensive omission regarding foreign debt came after the Russian Revolution, when the Bolshevik government rejected debts from the tsarist period.

Western investors have already suffered heavy losses on Russian assets, with the default being largely priced since the imposition of U.S. and European sanctions aimed at disconnecting Russia from the global financial system.

Default looms as Russia hits deadline for dollar bond payments Source link Default looms as Russia hits deadline for dollar bond payments

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