Russia in default from tomorrow: it is the first time since 1998. The two unpaid bonds and what can happen

The military, political and diplomatic conflict between the West and Putin’s Russia is about to be enriched by a financial front of no less importance. Ends Sunday evening on «grace period(Lasted one month) for Moscow’s non-payments on coupons and bonds in dollars and euros which expired in May and were not repaid by the Kremlin.
This means that on Monday morning, barring sudden last-minute payments from Moscow (so far there are no signs of this), Russia would be “technically” in default. In other words, for the first time since 1998, Moscow would “default” on creditors. Indeed, Russia has not registered a default on international bonds since the Bolshevik Revolution more than a century ago.

Bonds of $ 40 billion

To trigger the new Russian default, would be 100 million dollars (in interest) on two bonds, one denominated in dollars and one in euro maturing in 2026 and 2036. Moscow was supposed to pay the two bonds on May 27, but it was granted a “grace period” of 30 days which expires precisely on the night of June 26th. Russia has $ 40 billion in bonds outstanding as of the date of the invasion of Ukraine on February 24th. The attack resulted in profound sanctions that effectively cut the country out of the global financial system and made its assets “unapproachable” for many investors. The Kremlin has repeatedly asserted that there are no compelling reasons for Russia’s technical default, but that it is unable to send currency money to bondholders due to the sanctions and has accused the West of trying to push it into an artificial default.

The “symbolic” default

The Russian default, in reality, would be largely a “symbolic” event with few concrete effects on Putin’s ability to find financing: Russia is an international “pariah”, that is, a marginalized country, cut off from world credit circuits. Moreover, the rich proceeds from the sale of gas and oil to the Western countries themselves allow Putin to easily finance the Russian bureaucracy machine and the war on Ukraine. As symbolic as it may be, the default would still be a severe blow to the nation’s prestige. The Russian finance ministry said it made payments to its National Settlement Depository (NSD) in euros and dollars, adding that it had fulfilled its contractual obligations. However, due to the sanctions, the funds are unlikely to reach many international holders. For many bondholders, failure to receive the money owed on their accounts in time constitutes a default that leads to default and the inability to access additional funds from abroad before having found a solution for outstanding debts.

The American blockade

The country’s efforts to avoid what would be its first default on international bonds since the Bolshevik revolution more than a century ago met an insurmountable obstacle when the U.S. Treasury Department’s Office of Foreign Assets Control (Ofac) fact blocked Moscow from making payments at the end of May. “Since March we thought a Russian default was probably inevitable, and the question was only when,” Dennis Hranitzky, head of sovereign litigation at Quinn Emanuel law firm, told Reuters. The default is almost upon us ».

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Russia in default from tomorrow: it is the first time since 1998. The two unpaid bonds and what can happen

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