Russia might be in default after it tried to service its US dollar bonds in rubles due to Western sanctions over the war in Ukraine, financial ratings agency Moody’s Corp said on Thursday.
It would be Moscow’s first major default on foreign bonds since the years following the 1917 Bolshevik revolution.
Russia made a payment due on Monday last week on two sovereign bonds — maturing this year and in 2042 — in rubles rather than US dollars, as it was mandated to do under the terms of the securities.
Photo: EPA-EFE
Russia “therefore may be considered a default under Moody’s definition if not cured by 4 May, which is the end of the grace period,” Moody’s said in a statement. “The bond contracts have no provision for repayment in any other currency other than dollars.”
Moody’s said that while some Russian euro-denominated bonds issued after 2018 allow payments in rubles under some conditions, those issued before 2018 — such as those maturing this year and in 2042 — do not.
“Investors did not obtain the foreign-currency contractual promise on the payment due date,” Moody’s said.
Russia has repeatedly said that it wants to service its debt, but counters that the West has prevented it from paying by imposing crippling sanctions after Russian President Vladimir Putin on Feb. 24 ordered a “special military operation” in Ukraine.
Russia in 1998 defaulted on US$40 billion in domestic debt, and devalued the ruble under then-Russian president Boris Yeltsin because it was effectively bankrupt after the Asian debt crisis and falling oil prices shook confidence in its short-term ruble debt.
This time, Russia has the money, but cannot pay because its foreign exchange reserves — the world’s fourth largest — which Putin ordered be built up for just such a crisis, are frozen by the US, EU, UK and Canada.
It could be Russia’s first major debt default in more than a century. Even when the Soviet Union collapsed, Russia assumed its foreign debt.
In 1918, Bolshevik revolutionaries under Vladimir Lenin repudiated Tsarist debt, shocking global markets, as Russia had one of the world’s biggest foreign debt piles.
With the bonds worth nothing, some holders of the Tsarist notes used them as wallpaper.
The Soviet Union stopped servicing loans to the US and Sweden after World War II.
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