Kremlin partially serviced the bond
Russia is trying to avert state bankruptcy
03/18/2022, 02:35 am
The Kremlin is in arrears: it actually had to service $117 million in government bond debt by last Wednesday. Now some creditors receive the interest payments due. Moscow could still meet its obligations.
Russia has apparently been able to avert a state bankruptcy as a result of western sanctions for the time being. Some holders of $117 million in Russian dollar bonds have received the interest payments due, two market participants told Reuters. The payments are seen as a first test of whether the government in Moscow can meet its international debt obligations after the West also wants to hit the Russian financial market with sanctions.
The Ministry of Finance in Moscow announced on Thursday that it had ordered the payments. “The coupon was paid contrary to my expectations, and in dollars,” said one market participant. Other beneficiaries said they have not yet received any money but are optimistic that they will. The interest payments on the bonds were already due on Wednesday. However, a default by Russia will only become official once the 30-day grace period has expired.
If a country cannot or does not want to pay its debts, it will become more difficult and expensive to borrow money in the future. Since the West has imposed financial sanctions on Russia anyway, the country is already largely isolated. Russia can no longer borrow money from the big financial centers like New York or London.
Last default in 1917
According to the investment bank JP Morgan, Russia has around 40 billion foreign currency debts. Around half is held by foreign creditors. Before the war, Russia’s debt was around 20 percent of gross domestic product. It would be the first time since the 1917 Russian Revolution that the country would default on its commitments. At that time, the Bolsheviks had not recognized the debts of the Tsarist era.
Meanwhile, US credit rating agency S&P lowered its rating on Russia’s creditworthiness even deeper into junk territory. The note for long-term foreign currency bonds is now at “CC” after “CCC-” – that was already rubbish.