Update, March 18, 2022: Reuters reports some bondholders have received payments, in dollars, within the 30-day grace period, while others remain waiting.
Russia’s finance ministry said it deposited a $117 million interest payment on two dollar-denominated bonds due Wednesday, despite global ratings agencies predicting the country may be heading for its first default on foreign-currency debt since 1918.
“Claims that Russia cannot fulfil its sovereign debt obligations are untrue,” Russia Finance Minister Anton Siluanov told state-controlled Russia Today earlier this week. “We have the necessary funds to service our obligations.”
Last week, Fitch Ratings said that a Russian sovereign default was “imminent” and downgraded its rating of Russian bonds to the group’s second-lowest level. International Monetary Fund managing director Kristalina Georgieva said Sunday that she did not consider a Russian default to be an “improbable event.”
But Moscow has accused the West of seeking to trigger an “artificial default” on Russia’s $38.5 billion of foreign currency sovereign debt. The Kremlin says Russia is able and willing to pay its debts, yet is barred from doing so due to sanctions levied against the country in retaliation for its invasion of Ukraine.
Wednesday’s $117 million interest payment was the first test of whether Moscow’s complaint is true.
Siluanov told RT Arabic on Wednesday that Russia had deposited its debt repayment with its foreign correspondent bank in London but said the ministry could not guarantee whether the bank would accept the transaction, because of U.S. sanctions prohibiting banks from engaging in business with certain Russian entities.
As of Thursday morning, some holders of the dollar-denominated bond told Bloomberg that they had yet to receive the money. Citibank—the bank responsible for distributing the payment to bondholders—did not immediately respond to a request for comment by Bloomberg on Thursday.
If Russia missed yesterday’s payment, that would trigger a 30-day grace period, granting the country until April 16 to make a payment before falling officially into default. But the U.S. Treasury denies U.S. sanctions would prevent Russia from paying its debts.
A Treasury spokesperson told Bloomberg on Wednesday that U.S. individuals and institutions were allowed to receive “interest, dividend and maturity payments” from the Russian central bank—thus meaning U.S. sanctions wouldn’t necessarily close off Russia’s ability to complete bond payments.
Yet the financial world has been girding itself for a Russian sovereign default over the past several weeks, as Russia threatened to pay back its creditors in rubles so long as its foreign reserves remained frozen by Western sanctions.
While some of Russia’s foreign-denominated bonds allow the country to service its debt in rubles, the bond due yesterday did not contain such a provision. If the country had paid yesterday’s bond in rubles, it would be considered a sovereign default, according to Fitch Ratings.
Russia has an additional $615 million of interest payments due over the rest of March, and will need to make its first principal payment—when a bond is paid back in full—of $2 billion on April 4.
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