Russia on cusp of historic default after failing to pay $117m

Russia is on the cusp of its first default on international debts since the Bolshevik revolution after Moscow failed to pay $ 117m owed to creditors.

City bondholders had been waiting for the funds to be transferred by the close of business in London on Wednesday, but they failed to arrive, Reuters reported.

The failure now triggers a 30-day grace period.

Guido Chamorro of Pictet said defaults were never clear-cut: “There is a grace period, so we are not really going to know whether this is a default or not until April 15. Anything could happen in the grace period.”

The Russian finance minister, Anton Siluanov, said Moscow had instructed the US bank that handles the bond payments to make the transfer, but did not know if it had been rejected.

He said Russia had the money to pay the debt, but “now the ball is in the court, primarily, of the American authorities”.

It was unclear if Russia had tried to pay the interest owed in dollars or rubles. Clauses in the debt stipulate that payments must be made in dollars but Moscow said it would pay creditors in rubles if sanctions blocked the use of US currency.

However, the credit ratings agency Fitch warned that making a payment in rubles would “constitute a sovereign default, on expiry of the 30-day grace period”.

Many bondholders have said they would refuse payment in rubles.

Investors had been bracing for Russia to fail to make the payment with soaring credit default swaps suggests a high chance of default. Russia last defaulted on its international debts a century ago in the aftermath of the Russian revolution.

Althea Spinozzi, fixed income strategist at Saxo Bank, said: “If Russia pays interest on these bonds in local currency, the country might run the risk of default. This week we might get some sporadic news surrounding Russia’s interest payments, but a default will only be confirmed a few weeks from now. “

Moscow has accused the West of engineering an “artificial default” by sanctioning the central bank and freezing part of its $ 630bn war chest of foreign reserves.

Jeff Grills at Aegon Asset Management added: “I think the market now expects Russia not to make the [bond] payments. “

.

Leave a Reply

Your email address will not be published.