According to major rating agencies, Russia faces a new threat of debt default on May 4, as the grace period ends after it tries to service its payments on its dollar bonds in Russian rubles.
Mikhail Tereshchenko Satellite through Reuters
Russia looks set to meet another debt repayment deadline on Wednesday after using its foreign exchange reserves to prevent a historic default on government debt.
The U.S. Office of Foreign Assets Control, the Treasury Department that administers and imposes economic and trade sanctions, received payments from Moscow last week. And Bloomberg reported on Tuesday that at least one international clearing house has processed payments of $ 650 million in coupon and principal payments on Eurobonds maturing in 2022 and 2042.
The funds were reportedly targeted at Citibank’s London branch, but it is unclear whether they will reach their target recipients before the deadline. A Citibank spokeswoman declined to comment.
The Russian Finance Ministry’s turnaround came on Friday after initially trying to make payments on dollar-denominated Russian ruble-denominated bonds on April 4th. The major rating agencies suggested that this would be the first default on foreign debt since 1917 if Moscow failed to meet its foreign currency obligations by the end of the one-month grace period on May 4.
Timothy Ash, EM’s senior sovereign strategist at BlueBay Asset Management, said on Tuesday he was surprised that OFAC had apparently abolished payments after its previous difficult announcements.
“OFAC keeps all options open. It still has the option not to renew the general license on May 27 and can take action at any time to stop Western institutions from processing bond payments,” he told CNBC by email.
Ash said recent events show that Russia wants to pay its foreign creditors and has the resources to do so, in addition to those frozen by sanctions.
“OFAC could force Russia into default at any time. OFAC is still in the driver’s seat, “he added.
The attempt to pay in rubles came after the US Treasury Department refused in early April to release Russian payments on foreign bonds, despite US sanctions, a special permit it gave in March.
About half of Russia’s vast foreign exchange reserves have been frozen by criminal economic sanctions imposed by international powers since its invasion of Ukraine.
S&P Global Ratings downgraded Russia’s foreign debt credit rating to “selective default” after paying in rubles on April 4, while before attempting to pay in dollars, Moody’s suggested that a deviation from the terms of payment of initial bond contracts by paying in rubles could to be considered a default on May 4, unless removed.
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