Russia has reportedly failed to repay its foreign debt for the first time since the 1917 revolution, further alienating the country from the global financial system following sanctions imposed over its war in Ukraine.
The country missed a deadline Sunday night to meet a 30-day grace period for $ 100 million in interest payments on two Eurobonds originally due on May 27, Bloomberg reported on Monday morning.
Some Taiwanese holders of Russian Eurobonds said Monday they had not received interest payments due, two sources told Reuters.
Official confirmation of the default was expected to come from international rating agencies.
Russia calls any default artificial because it has the money to pay its debts, but says sanctions have frozen its foreign exchange reserves.
“This is a very, very rare thing when a government that otherwise has the funds is forced by a foreign government to fail,” Hassan Malik, a senior sovereign analyst at Loomis Sayles, told Bloomberg. “This will be one of the biggest watershed failures in history.
Last month, the US Treasury Department cut off Russia’s ability to pay its billions of debts to international investors through US banks. In response, the Russian Finance Ministry said it would pay off dollar-denominated debts in rubles and offer “the possibility of further conversion into the original currency.”
“There is money, there is readiness to pay,” Russian Finance Minister Anton Siluanov said last month. “This situation, artificially created by an unfriendly side, will have no effect on the quality of life of Russians.
Tim Ash, a senior analyst at emerging markets at BlueBay Asset Management, tweeted that the default was “clearly not” out of Russia’s control and that sanctions were preventing it from paying its debts because it invaded Ukraine.
Russia has defaulted on $ 100 million in interest payments for the first time in a century
Russia withdrew against default, saying it had funds to cover and was forced not to pay
Investors can wait and see
An official default statement will come from rating agency pic.twitter.com/RILrYAQ3Cy
– Ayesha Tariq, CFA (@ayeshatariq) June 27, 2022
Russia owes about $ 40 billion in foreign bonds. Before the war, Russia had about $ 640 billion in foreign currency and gold reserves, much of which was held abroad and is now frozen.
Russia did not overdue its international debts since the revolution more than a century ago, when the Russian Empire collapsed and the Soviet Union was created.
Russia did not repay its domestic debts in the late 1990s, but managed to recover from this default with the help of international aid.
Investors expect Russia not to pay for months. Insurance contracts that cover Russia’s debt estimate an 80% chance of default for weeks, and rating agencies such as Standard & Poor’s and Moody’s have put the country’s debt deep in garbage.
Rating agencies can downgrade to default or the court can decide the issue.
Once a country defaults, it can be cut off from bond market loans until the default is resolved and investors regain confidence in the government’s ability and willingness to pay. But Russia is already cut off from Western capital markets, so any return on loans is a long way off.
The Kremlin can still borrow rubles at home, where it relies mainly on Russian banks to buy its bonds.
Western sanctions over the war sent foreign companies to flee Russia and severed the country’s trade and financial ties with the rest of the world. Failure to do so would be another symptom of this isolation and interruption.
Investment analysts cautiously believe that Russia’s bankruptcy will not have the same impact on global financial markets and institutions as the 1998 domestic debt default. save Long-Term Capital Management, a large US hedge fund whose collapse, it is feared, could shake the wider financial and banking system.
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