Russia Avoided Default on its $40 billion Sovereign Debt

By IndraStra Global News Team

Cover Image Attribute: The file photo of Moscow Street, Source: Serbuxarev, Pixabay.com
Cover Image Attribute: The file photo of Moscow Street, Source: Serbuxarev, Pixabay.com

Despite global rating agencies forecasting the country's first foreign-currency debt default since 1918, Russia's finance ministry said it submitted a $117 million interest payment on dollar-denominated notes (was due Wednesday, March 16, 2022).

Last week, Fitch Ratings predicted an "imminent" Russian sovereign default and cut Russian bonds to the group's second-lowest rating. Kristalina Georgieva, managing director of the International Monetary Fund (IMF), stated on Sunday that a Russian default was not an "improbable scenario."

Moscow, on the other hand, has accused the West of attempting to force Russia's $38.5 billion in foreign currency sovereign debt into "artificial default." The Kremlin claims that Russia is capable and ready to pay its debts, but that it is unable to do so due to sanctions imposed in response to its invasion of Ukraine.

The $117 million interest payment on Wednesday was the first test of whether Moscow's claim is valid.

Russia had deposited its debt payments with its foreign correspondent bank in London, according to Siluanov, but the ministry could not guarantee that the bank would accept the transaction due to US restrictions barring banks from doing business with specific Russian organizations.

Some holders of the dollar-denominated bond told Bloomberg on Thursday morning that they had yet to receive the funds. Citibank, the bank in charge of distributing the payment to bondholders, did not respond to Bloomberg's request for comment on Thursday.

If Russia fails to make the payment, it will be granted a 30-day grace period, giving it till April 16 to make a payment before going into default. The US Treasury, on the other hand, denies that US sanctions will prohibit Russia from paying its bills.

According to a Treasury spokesperson, U.S. persons and institutions are permitted to receive "interest, dividend, and maturity payments" from the Russian central bank, implying that US sanctions would not prevent Russia from making bond payments.

Yet, during the last few weeks, the financial world has been bracing itself for a Russian sovereign default, as Russia promised to repay its creditors in rubles as long as its foreign reserves were frozen by Western sanctions.

Although some of Russia's foreign-denominated notes allow the country to service its debt in rubles, the bond due yesterday did not. According to Fitch Ratings, if the country had paid the bond in rubles yesterday, it would be considered a sovereign default.

Russia has another $615 million in interest payments coming to the end of March, and its first principal payment of $2 billion (when a bond is paid in full) is due on April 4.

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IndraStra Global: Russia Avoided Default on its $40 billion Sovereign Debt
Russia Avoided Default on its $40 billion Sovereign Debt
By IndraStra Global News Team
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