The Credit Derivatives Determination Committee (CDDC) voted in favor of classifying a bond issued by Russian Railways in default, marking the first time a Russian-origin debt instrument has been officially labeled “default” since the invasion of Ukraine.
The CDDC, whose members include some of the world’s largest investment banks, said there was a credit “default” event on Swiss franc bonds linked to state-owned Russian Railways.
The loan participation notes due 2026 were issued by RZD Capital to finance a 250 million Swiss franc ($268 million) loan to Russian Railways.
Western sanctions against Russia have strained the Russian economy and raised questions about the potential default on many bonds issued by Russian companies.
This, in turn, has raised the possibility of Western lenders taking significant losses.
Bank of America, Goldman Sachs International and JP Morgan Chase Bank are among the Committee members who voted “yes” to the question of whether there was an event of default on these assets.
Some analysts see this as a precedent for whether a creditworthy issuer that was physically unable to make payment due to sanctions is deemed to be in default.
“Apparently the CDDC says yes … and it probably means something similar will be concluded with the Russian sovereign trying to pay a coupon in dollars, but not succeeding,” said a source on condition of anonymity.
A spokesman for UBS AG, the paying agent for the notes, declined to comment after being contacted by Reuters.
Russian Railways, which operates freight and passenger trains along thousands of kilometers of railways, reported trying to make the interest payment due on March 14, which it was unable to do due to “mandates of legal and regulatory compliance within the correspondent banking network,” according to a notice published by Swiss Exchange.
Russia could face its first sovereign default in more than a century after it earlier this week arranged to repay an international bond in rubles, even though the payment was due in dollars.
Société Générale Bank pulls out of Russia
On the other hand, the French bank Société Générale, which was still carrying out its activities in Russia since the beginning of the invasion of Ukraine, announced the end of these by transferring its entire stake in Rosbank.
The group mentioned the signing of “an agreement with a view to ceding its entire stake” in Rosbank, as well as its insurance subsidiaries in Russia in investment funds Interros Capital, the previous shareholder of Rosbank.
Société Générale said Russia’s exit would generate a negative impact of 3.1 billion euros ($3.4 billion).