Sanctions imposed on Russia by the United States, Europe and the rest of the West kept the nation hours away from its first default. Russia denies the naming, saying it is not delinquent because it has enough funds, but the grace period for about $100 million in missed bond payments expired Sunday night.
Payments have been blocked due to widespread sanctions and a Bloomberg report if investors don’t have money by the deadline, bond documents say, will result in a “default case” in the morning.
There will be no official announcement that Russia missed. It would be the first time in more than a hundred years that Russia would mark its default abroad.
In 1918, the Bolsheviks questioned the legitimacy of the Tsarist-era loans, marking the first time Russia made its first foreign default. In early 2022, Russia faced a similar situation but escaped the situation by changing payment methods.
The US ended a series of sanctions that allowed US investors to receive payments on government bonds in May, closing the alternative route – just days before the $100 million owed.
The market is now faced with a unique situation as the defaulting borrower wishes and has the means to pay but cannot. Rating agencies will issue a declaration of insolvency, but they are barred from doing business with Russia due to sanctions.
Bondholders can make their statement collectively, but the Bloomberg report says they may prefer to wait and see what the situation in Ukraine is like and the level of sanctions while they are at their lowest. Some are considering the possibility of getting the money back.
“The Russian government has already missed an opportunity to issue dollar-denominated debt. Russia is already unable to borrow from most other countries. The bankruptcy declaration is a symbolic event,” said the Nomura Research Institute in Tokyo. This was announced by the Bloomberg news agency to economist Takahide Kiuchi.
Payment routes were snapped up as penalties against Russian officials, banks and individuals increasingly cut off payment routes. Bloomberg said Russia argues it has met its obligations to creditors by sending May’s payments to a local paying agent, even though investors have no money in their accounts.
The bonds in question do not allow payments in rubles, but Russia made transfers in its own currency earlier this week.
Finance Minister Anton Siluanov justified the currency conversion with an event of force majeure and called the situation a farce. Lawyers who spoke to Bloomberg said that historically, the legal justification for a force majeure event did not include sanctions.
Siluanov said Russia is being artificially prevented from repaying its foreign sovereign debt in a bid to affix the default label. “Anyone can explain their choice and try to attach such a label. But anyone who understands the situation knows that this is by no means a default,” Siluanov was quoted as saying by the Bloomberg news agency.
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