Russia warns sovereign bondholders that payments depend on sanctions

Russian ruble coins are seen in this illustration taken February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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  • Some dollar bonds to be paid in rubles
  • Russian debt now classified as “junk”
  • Russia could face first foreign debt default since 1918

LONDON, March 6 (Reuters) – Russia said on Sunday that sovereign bond payments would depend on Western sanctions over the invasion of Ukraine, raising the specter of its first major bond default. foreigners since the years following the Bolshevik Revolution of 1917.

Russia’s finance ministry said it would service and pay sovereign debts in full and on time, but payments could be hampered by international sanctions.

“The actual possibility of making such payments to non-residents will depend on the limiting measures introduced by foreign states in relation to the Russian Federation,” the finance ministry said in a statement.

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It raises the possibility of a technical default on Russia’s debt after much of its $640 billion in reserves was frozen by the West after President Vladimir Putin ordered what Russia describes as a special military operation in Ukraine on February 24.

From now on, Russia will use rubles to make payments to residents on bonds denominated in foreign currencies, the ministry said.

The Finance Ministry in Moscow has also explicitly stated that Russia may not be able to make bond payments due to restrictions imposed by the Russian government.

In 1998, Russia defaulted on $40 billion in domestic debt and devalued the ruble under President Boris Yeltsin because it was effectively bankrupt after the Asian debt crisis and falling oil prices rattled confidence in its short-term ruble debt.

This time Russia has the money but cannot pay because the reserves – the fourth in the world – that Putin ordered to be built up for such a crisis are frozen by the United States, the European Union, Great Britain Britain and Canada.

It could be Russia’s first major 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 debt markets because Russia then had one of the largest foreign debts in the world.

Bonds were worth nothing, so some holders of Tsarist banknotes used them as wallpaper. The Soviet Union under Josef Stalin stopped repaying loans to the United States and Sweden after World War II.


While Russia has only $40 billion in international bonds outstanding across 15 dollar or euro-denominated issues, its companies have racked up far more foreign debt.

Eurobonds were issued with a combination of terms and deeds.

Notably, the bonds sold after Russia was sanctioned for its annexation of Crimea in 2014 contain a provision for payments in alternative currencies in dollars, euros, pounds sterling or Swiss francs, with the ruble listed as an alternative currency option. for bonds issued since 2018.

On March 16, Russia must pay $107 million in coupons on two bonds, although it has a 30-day grace period to make the payments. The next full “principal” repayment is a $359 million bond to 2030 on March 31, then a larger $2 billion maturity on April 4.

Russian gas giant Gazprom has a $1.3 billion bond due March 7.

According to JPMorgan, the OFZ bond market totaled 15.5 trillion rubles, or about $200 billion at the January ruble rate, with foreigners holding just under a fifth of the bonds.

Earlier on Sunday, Moody’s downgraded Russia’s credit rating to Ca, the second-lowest rung on its rating ladder, citing central bank capital controls that may restrict payments on the country’s external debt and lead to default. Read more

Moody’s said its decision was prompted by “serious concerns about Russia’s willingness and ability to pay its debts.”

The rating agency said default risks had increased and foreign bondholders were likely to recover only part of their investment.

Moody’s and peers Fitch and S&P Global had rated Russia at investment grade levels of Baa3/BBB as recently as March 1. All three have since downgraded their ratings several notches, sending Russia’s sovereign debt deep into so-called “junk” territory. .

($1 = 121.0370 rubles)

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Reporting by Guy Faulconbridge Editing by David Goodman

Our standards: The Thomson Reuters Trust Principles.

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