Russia Defaults on Foreign Debt for First Time Since 1918

Bloomberg:

• The grace periods on two eurobond coupons expired on Sunday
• Russia’s Finance Minister calls the default label a ‘farce’

“It’s a very, very rare thing, where a government that otherwise has the means is forced by an external government into default,”

Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors.  

For months, the country found paths around the penalties imposed after the Kremlin’s invasion of Ukraine. But at the end of the day on Sunday, the grace period on about $100 million of snared interest payments due May 27 expired, a deadline considered an event of default if missed.

It’s a grim marker in the country’s rapid transformation into an economic, financial and political outcast. The nation’s eurobonds have traded at distressed levels since the start of March, the central bank’s foreign reserves remain frozen, and the biggest banks are severed from the global financial system. 

But given the damage already done to the economy and markets, the default is also mostly symbolic for now, and matters little to Russians dealing with double-digit inflation and the worst economic contraction in years. 

Russia has pushed back against the default designation, saying it has the funds to cover any bills and has been forced into non-payment. As it tried to twist its way out, it announced last week that it would switch to servicing its $40 billion of outstanding sovereign debt in rubles, criticizing a “force-majeure” situation it said was artificially manufactured by the West.

“It’s a very, very rare thing, where a government that otherwise has the means is forced by an external government into default,” said Hassan Malik, senior sovereign analyst at Loomis Sayles & Company LP. “It’s going to be one of the big watershed defaults in history.”

A formal declaration would usually come from ratings firms, but European sanctions led to them withdrawing ratings on Russian entities. According to the documents for the notes whose grace period expired Sunday, holders can call one themselves if owners of 25% of the outstanding bonds agree that an “Event of Default” has occurred. 

More

InternationalRussia