Russia may be in ‘default’ after paying foreign bonds in roubles – ‘End of grace period’

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The statement comes as one of the starkest consequences to date of Moscow’s exclusion from the Western financial system since President Vladimir Putin’s invasion of Ukraine. If Moscow is declared in default, it would mark Russia’s first major default on foreign bonds since the years following the 1917 Bolshevik revolution, though the Kremlin says the West is forcing a default by imposing crippling sanctions.

The agency noted that Russia made payments on two bonds in rubles, rather than in US dollars, which was against the terms of the bond contracts.

In a statement, the ratings agency said: “The bond contracts have no provision for repayment in any other currency other than dollars.”

The payments indicate “a change in payment terms relative to the original bond contracts and therefore may be considered a default under Moody’s definition if not cured by May 4, which is the end of the grace period,” Moody’s said in a press release.

The bonds in question mature in 2022 and 2042.

Moody’s noted that while some bonds issued after 2018 allow for payments in rubles under some conditions, those issued earlier, including those maturing in 2022 and 2042, do not.

Russia’s finance ministry said last week that it tried to make a $649 million payment toward two bonds to a US bank but that payment was not accepted because of sanctions.

Russia has signalled that it remains willing to pay its debts, but the Kremlin also has warned that it would do so in rubles if its overseas accounts in foreign currencies remain frozen.

Finance Minister Anton Siluanov recently warned that Russia would take legal action if it is forced to default on its sovereign debt.

Russia has said that any default would be “artificial” because its foreign-currency reserves have been immobilised by the sanctions and argued that payments in rubles should be a suitable alternative.

Russia has not defaulted on foreign debt since the Bolshevik Revolution in 1917, when the Soviet Union emerged and repudiated debts made by the previous Tsarist government.

In the late 1990s, after the Soviet Union dissolved, Russia was able to continue to pay foreign debts with the help of international aid.

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However, it did default on domestic debt.

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