Pimco/Russia bondholders: dicing with debt

Bond investors seem to have finally given up hope on Russian debt. As Russia and its banks become increasingly detached from a central financial infrastructure, the market now assumes it will no longer pay its foreign debt payments.

Government bonds in dollars that are due to be repaid in 2027 are now trading at a deep distress level of 8 cents on the dollar. A default may arrive as early as April 15, which will mark the end of a 30-day grace period if they miss payments worth $ 107 million to be repaid next week.

Pimco is among a large group of global investors who could be seen losing billions of dollars if Russia fails. The California fund manager had at least $ 1.5 billion in sovereign debt and about $ 1 billion in gambling on Russia through the default credit swap market, The FT reports. Goldman Sachs, Feiden, Ashmore and Western Assets are others who have exposure to Russian debts, According to Morningstar.

Non-payment on any portion of its $ 39 billion foreign debt will not be due to a lack of cash. Russia had nearly $ 630 billion in gold and foreign exchange reserves at the end of January. While the bulk of it is parked overseas, over a third is held in Israel or abroad in China, which has not agreed to enforce sanctions against it.

Instead, Western sanctions and Moscow’s own capital controls create difficulties in getting payment to foreign creditors. Russia and Russian companies are allowed to service only the debt denominated in dollars and euros in rubles. An exception is given to creditors from countries that have not imposed sanctions on Russia.

Yet default is not a foregone conclusion. Gazprom has successfully paid off its $ 1.3 billion worth of bonds this week. Russia will probably also be wary of its frozen assets overseas – including hundreds of billions of dollars in foreign reserves – seized to repay the failed debt. There is the question of whether paying in rubles for a dollar debt is a default. But for eagles with a high tolerance for risks, now is the time to buy Russian debt. The rest will wait.

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Pimco/Russia bondholders: dicing with debt Source link Pimco/Russia bondholders: dicing with debt

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