Russia is on the verge of defaulting on its foreign debts, according to the rating agency | Russia
Russia’s shift to paying debt in rubles has brought the heavily sanctioned country to the brink of defaulting on its debts, according to a leading credit rating agency.
Putting further pressure on Vladimir Putin’s beleaguered government, Moody’s said that without a return by May 4 to dollar payments as agreed under the terms of Russia’s loans, Moscow could be in default, allowing creditors to reclaim payments. insurance and tarnishing the country’s reputation as a reliable counterparty.
Moody’s warning of impending default is expected to meet an angry response from the Putin administration, which has denied that rules governing its loans prevent Russia from paying interest in roubles.
Responding to a similar statement last week by Standard & Poor’s that ruble payments jeopardized Russia’s borrower status, the Kremlin said the West had already defaulted by freezing its reserves and that he wanted a new system to replace the Bretton Woods Financial Architecture established by the Western powers in 1944.
Sanctions imposed on Russia since its invasion of Ukraine have prevented Russia’s central bank from accessing much of the foreign currency it has amassed in recent years.
Earlier this week, Anton Siluanov told the pro-Kremlin newspaper Izvestia that Russia had taken “all necessary steps” to pay its international creditors.
Russia’s finance minister suggested he could go to court to argue that the terms of his repayments had been met. “Of course we will continue, as we have taken all necessary steps to ensure that investors receive their payments,” he said.
If Moscow is declared in default, it would mark Russia’s first interest default on foreign bonds since the 1998 currency crisis, when investor confidence plummeted and Boris Yeltsin’s government failed to was able to sell new bonds on the international markets to finance the old ones. .
Over the past week, Russia has had to meet two payment deadlines on bonds it had previously sold to foreign investors. The combined interest was worth almost $650 million and Russia was supposed to have made the payments in dollars, according to the terms of the bond contracts.
It is understood that one of Russia’s major lenders has asked the Credit Derivatives Determination Committee, a division of a trade body made up of representatives of private sector lenders, to assess whether a “potential default” s was produced in connection with the Russian debt. obligations.
Russia still has 18 days out of a 30-day grace period before the committee is able to rule that a “credit event” – a default – has occurred.
Moody’s said: “Russia would have made payments on two bonds maturing in 2022 and 2042 in rubles rather than US dollars, which represents a change in payment terms from the original bond contracts and may therefore be considered a default under Moody’s definition if not corrected by May 4, which is the end of the grace period.
“The bond contracts do not provide for any reimbursement in a currency other than the dollar,” he added.
In 1998, Russia forced lenders to wait 90 days before paying debt interest, triggering a technical default. Desperate to keep imports flowing, but without the foreign currency to pay for them, the Kremlin has resorted to a barter system with foreign companies and governments, which some analysts say is being rolled out as a means of circumventing the rules. of penalties.
The country was bailed out by a rise in the price of oil which generated billions of dollars in foreign exchange. By the end of 1998, the economy had started to recover and the government was able to repay the debt.
Foreign lenders fear that a freeze on Russia’s dollar and euro assets under the current sanctions regime will mean a similar recovery and return to foreign currency interest payments will prove beyond the Kremlin. this time.
If Russia fails to meet debt maturities, lenders who have insured their loans using credit default swaps will be able to seek insurance repayments.