Russia has defaulted on its foreign debt, says S&P

Russia has breached its foreign obligations debt because it offered bondholders ruble paymentsnot dollars, the S&P credit rating agency has said.

Russia attempted to pay in rubles for two dollar-denominated bonds due on April 4, S&P said in a note on Friday. The agency said this amounted to a “selective default” because investors are unlikely to be able to convert the rubles into “dollars equivalent to amounts originally owed.”

According to S&P, a selective default is declared when an entity has defaulted on a specific obligation but not on all of its debt.

Moscow has a 30-day grace period from April 4 to make principal and interest payments, but S&P said it does not expect to convert them into dollars given Western sanctions that undermine its “will and technical ability to meet the terms.” and conditions”. ” from his obligations

A total foreign currency default would be Russia’s first in more than a century, when Bolshevik leader Vladimir Lenin repudiated bonds issued by the tsarist government.

Russia is roughly unable to access the US.$315 billion of its foreign exchange reserves as a result of sanctions imposed by the West following its invasion of Ukraine. Until last week, the United States allowed Russia to use some of its frozen assets to reimburse certain investors in dollars. But the US Treasury has since blocked the country from accessing its reserves in US banks, part of his effort to increase pressure on Russian President Vladimir Putin and further decrease his war chest.

JPMorgan estimates that Russia had about $40 billion of foreign currency debt at the end of last year, with about half held by foreign investors.

Moscow prepares to go to court

Russia is now planning legal action.

“We will sue because we took all the necessary measures so that the investors received their payments,” Finance Minister Anton Siluanov told the pro-Kremlin Izvestia newspaper on Monday.

“We will show the court evidence of our payments, to confirm our efforts to pay in rubles, just as we did in foreign currency. It will not be a simple process,” he added. He did not say who Russia plans to sue.

Kremlin spokesman Dmitry Peskov told a news conference last week that any default would be “artificial” because Russia has the dollars to pay, it simply cannot access them.

“There is no reason for a real breach,” Peskov said. “Not even close.”

Russia has done everything possible to artificially prop up the ruble, which sank by as much as 40 percent to less than a US cent in the days after the invasion, even raising interest rates to 20 percent and forcing exporters to exchange most of their foreign currency earnings for rubles.

That measure remains in place, but the central bank has decided to relax some other restrictions, Reuters reported on Monday, announcing last week that it would cut interest rates to 17 percent.

The ruble was trading at 79 per US dollar on Monday, according to Refinitiv data. That’s about five percent weaker than Saturday.

David Goldman and Chris Liakos contributed to this report.

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