Russia did not pay interest on a debt – Investor Panel

Russia has failed to pay $1.9 million in accrued interest on a sovereign bond, a panel of investors said Wednesday, as Moscow faces the risk of its first default in decades.

The Credit Derivatives Determinations Committee (CDDC) said on its website that it had voted “yes” in response to a question from bondholders about whether a “credit default” s was produced.

Punitive Western sanctions against Russia have largely cut the country off from the international financial system, making it difficult for Moscow to service its debt.

The country last defaulted on its foreign currency debt in 1918, when the leader of the Bolshevik Revolution Vladimir Lenin refused to recognize the obligations of the deposed tsar’s regime.

It defaulted on its ruble-denominated debt in 1998 amid a wider financial crisis.

But this time, the sanctions would be at the root of the country’s inability to repay its creditors.

The CDDC’s decision was related to a bond that matured on April 4, but payment of principal and interest was not made until May 2, resulting in an additional debt of $1.9 million.

The panel can decide whether or not to activate a credit default swap, essentially an insurance policy against non-payment of debt, but gave no indication on Wednesday of how it would jump, although it is to meet on the matter next Monday. .

Default risk

So far, Russia “has paid the sums it had to pay on the agreed date but, intentionally or not, forgot to add the interest due”, Eric Dor, director of economic studies, told AFP. at the IESEG School of Management.

The amount is small compared to other debt payments Russia has faced.

The sanctions have blocked Moscow’s ability to access funds held in US banks to pay its foreign creditors.

The US Treasury last week ended an exemption allowing Moscow to make payments in dollars held in Russia – after the $1.9m credit event reviewed by the CDDC

The safeguard clause allowed US banks to receive and process payments to creditors.

The latest decision reverses the final outlet, which required President Vladimir Putin’s government to empty its war reserves to make payments.

Russia responded by saying it would start paying its foreign debt in rubles, which could then be converted into the original currency through a Russian financial institution.

But many bonds do not allow redemption in rubles.

Three more interest payments, totaling just under $400 million, are due at the end of June, according to data compiled by Bloomberg. Some of these bonds can only be paid in dollars.

In total, the Russian government is to make 14 bond payments by the end of this year.

A default usually means that a country loses the ability to borrow in international capital markets for several years until it regains investor confidence.

In this case, the international sanctions in place prevent Russia from borrowing. Creditor confidence in Russia’s ability to repay is not currently an issue, but could be if the sanctions plunge the country’s economy into a severe recession.


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John A. Bogar