Russia aims to avert historic debt default with last-ditch dollar bond payments

[Rogue Valley]

Russia aims to avert historic debt default with last-ditch dollar bond payments

Central Bank of Russia Governor Elvira Nabiullina.

4.29.22
Russia looks to have averted a historic sovereign default on Friday by tapping its domestic reserves and attempting to make overdue dollar payments on its international debt obligations. Earlier Friday, Russia's Finance Ministry said that it had attempted the dollar payments — a dramatic U-turn after the country had previously sought to make the payments on its dollar-denominated bonds in Russian rubles. The ministry said it had made a payment of $564.8 million on a 2022 eurobond and a payment of $84.4 million on a 2042 eurobond, according to Reuters, with both in dollars — which was originally stipulated in the debt agreements. The funds have reportedly been channeled to the London branch of Citibank but it's unclear whether they will reach their intended recipients. The payments were due to be made in April and had entered a 30-day grace period before official default on May 4.

Russian government bonds rallied Friday afternoon following the news from the Finance Ministry. But close Moscow watchers like Timothy Ash, emerging markets strategist at BlueBay Asset Management, were unsure whether it would still be able to avoid a default. "CDS committee [credit derivatives determinations committee] already ruled default so this is pretty extraordinary. A senior U.S. official said later Friday that Russia had not mobilized money through the U.S. system and the payments involved fresh funds. "The main concern was are they going to use funds that were immobilized in the U.S. or use the money they have been using to prop up the ruble and the war effort. It appears it came from that pile of money because we didn't authorize any transactions involving the immobilized funds in the U.S.," the official said, according to Reuters. On April 4, Russia made a payment on the two sovereign bonds that are due to mature in 2022 and 2042 in the local currency rather than in dollars as mandated under the terms of its contract.

Russia now attempted to make these two sovereign bond payments in USD as stipulated by the bond terms but almost a month late. Whether this second attempt at payment will be accepted is another matter.

These USD must have come from Russia's dwindling cache of 300 billion in hard currencies (dollars and euros). A sovereign bond default will ruin Russia's international credit rating for a decade.

 

[joluoto]

And this is exactly why their "you must pay in rubles" policy is moronic. They need foreign currency.

 

[Juin]

And this is exactly why their "you must pay in rubles" policy is moronic. They need foreign currency.

Let Russians be the best judge of what is in their own interest.