CNA — Russia edged closer to default yesterday amid few signs that investors holding its international bonds had received payment, heralding what would be the country’s first default in decades.
Russia has struggled to keep payments on $40 billion in bonds outstanding since its Feb. 24 invasion of Ukraine, which prompted sweeping sanctions that effectively cut the country off from the global financial system and returned its assets untouchable for many investors.
The Kremlin has repeatedly said there is no reason for Russia to default, but it is unable to send money to bondholders due to sanctions, accusing the West of trying to drive it to an artificial default.
The country’s efforts to avoid what would be its first major default on international obligations since the Bolshevik Revolution more than a century ago ran into an insurmountable obstacle when the Department of Foreign Assets’ Office of Foreign Assets Control (OFAC) The United States Treasury effectively blocked Moscow from making late May payments.
“Since March, we thought a Russian default was probably inevitable, and the question was when,” the head of sovereign litigation at law firm Quinn Emanuel Dennis Hranitzky told the media.
“OFAC stepped in to answer that question for us, and the default is now on us.” While a formal default would be largely symbolic given that Russia cannot borrow internationally at the moment and does not need to thanks to its rich oil and gas revenues, the stigma would likely increase its borrowing costs. in the future.
“The payments in question are $100 million in interest on two bonds, one denominated in US dollars and the other in euros, which Russia was due to pay on May 27. The payments had a grace period of 30 days, which expired yesterday.
The Russian Finance Ministry said it had made payments to its onshore National Settlement Depository (NSD) in euros and dollars, adding that it had fulfilled its obligations.
However, the funds are unlikely to reach many international holders. For many bondholders, not receiving the amounts due in their accounts on time constitutes a default.
With no exact deadline specified in the prospectus, lawyers said Russia may have until the end of the next business day to pay the bondholders.