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Russia threatens to make external debt payments in roubles

Russia has threatened to pay international bondholders in rubles rather than dollars just days before paying central interest on its external debt.

Russia’s finance minister Anton Silwanov said on Sunday that it was “perfectly fair” for the country to pay all of its sovereign debt payments in rubles until Western sanctions, which he said had frozen $ 300 billion of the country’s reserves, were lifted.

Moscow is expected to make combined interest payments of $ 117 million this coming Wednesday on two dollar-denominated bonds, according to JPMorgan. The bond contracts do not give Russia the option to pay in rubles, according to the bank on Wall Street.

The latest warning to foreign bondholders exacerbates the likelihood that the country will repay its debt for the first time since the Russian financial crisis in 1998, as its financial system is under heavy pressure from the steps Western governments have taken following the invasion.

“We have to pay for critical imports. Food, medicine, a whole range of other essential products,” Silwanov told an interviewer on state television. “But the debts we have to pay to countries that were not friendly to the Russian Federation and restricted our use of foreign exchange reserves – we will pay our debt to these countries equivalent to the ruble,” he said.

Silwanov said nearly half of Russia’s $ 643 billion in foreign reserves were affected by the sanctions, but did not disclose the evidence and jurisdiction Russia holds in other currencies.

Investors have succumbed to the default, with both bonds trading at around 20 cents on the dollar. Moscow will have a 30-day grace period for making coupon payments.

International investors hold Around $ 170 billion In Russian assets, according to Financial Times calculations, with $ 20 billion in foreign currency bonds. More than two dozen asset management companies were forced to freeze funds with significant exposure to Russia, while others were forced to Write sharply Their value.

Since the invasion there has been an exit from Russian assets, as the US and the EU have sought to sever the country’s ties with the global financial system. Moscow’s stock market has been closed since February 28, but shares of many Russian companies traded overseas crumbled About. The ruble has fallen more than 45% this year, leading to the largest annual fall since 1998, when Russia failed to pay off its domestic currency debt.

The IMF’s executive director, Christina Giorgio, told CBS News on Sunday that “in terms of debt service, I can say we are no longer thinking of a Russian default as an unreasonable event.”

As a sign of how suddenly Western investors’ views on Moscow have changed, Russia has been ranked in the investment rankings of Fitch, S&P Global and Moody’s Investors Service – the three main rating agencies – until February 25th.

As of early February, Russia held $ 311 billion in foreign securities, $ 152 billion in cash and deposits in foreign banks, $ 30 billion in special deposit receipts at the IMF and another $ 132 billion in gold. Russia cut its holdings in the dollar from 45% of all shares in 2013 – the year before the first Western sanctions on Crimean annexation – to just 16.4% in 2021.

The central bank publishes data on Russia’s foreign exchange structure at least six months behind. As of June 2021, the euro accounted for 32.3% of Russia’s holdings, the renminbi 13.1%, the pound sterling 6.5%, other currencies 10% and gold 21.7%.

China held 14.2% of Russia’s reserves, the largest share in each country, with Japan holding 12.3% and Germany 11.8%.

Silwanov claimed that Western countries were pushing China to restrict Russia’s use of its renminbi reserves, but said he was confident Beijing would not succumb to pressure. “I think our partnership with China will allow us to maintain the cooperation we have achieved and increase it when the Western markets close,” he said.

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