debt service “impossible”
Russian companies are facing payment defaults due to sanctions
April 12, 2022, 4:35 p.m
Russia is on the verge of defaulting on its foreign debt for the first time in more than a century. The first companies are also reporting payment defaults. The state and companies have more than enough money.
As a result of the international financial sanctions, not only the Russian state, but also some companies can no longer repay their international debts. Among other things, Russian Railways failed to make a payment due on a loan of 250 million Swiss francs. As a result, the Credit Derivatives Determinations Committee, which includes large investment banks, officially declared a default on Monday. The railroad said it was attempting to make the interest payments that were due March 14. However, due to “legal and regulatory obligations within the correspondent bank network”, it was unable to do so, according to a statement.
The Alrosa Group, one of the world’s largest diamond producers, also failed to pay an interest payment of $11.6 million due over the weekend, Russian news agency Interfax reported. Britain sanctioned the group on March 24, followed by the US Treasury Department last week.
The effects of these sanctions make paying off the debt “technically impossible” even though the financial means are available, Alrosa told Interfax. The group of companies, which is based in Yakutia in eastern Siberia, has more than enough money. It recently announced a profit of 91.3 billion rubles (1.0 billion euros) for the past fiscal year. In a year-on-year comparison, the group’s profit had tripled.
“No objective reasons”
For the first time in more than a century, the Russian state was also unable to pay off its foreign debt due to the sanctions. Rating agencies and creditors usually wait a 30-day grace period before a formal default, often referred to as a national bankruptcy, is declared.
The Kremlin said Russia has the means to pay its debts. “There can only be a technical, man-made default,” said Kremlin spokesman Dmitry Peskov. “There are no objective reasons for such a failure. Russia has everything it needs to fulfill all its obligations.”
The US recently increased economic pressure on Russia because of the invasion of Ukraine. The Treasury Department last week prevented the Russian government from making more than $600 million in payments due to its creditors from foreign exchange reserves held at US banks. The reserves held by the Russian central bank were frozen after the war began, but Moscow has so far been able to use them to make payments on government bonds denominated in dollars. The purpose of the blockade is to force the Kremlin to make a decision: Use the dollars it has access to domestically to either pay its creditors or use it for other purposes, such as financing the war.