A stop sign is seen next to skyscrapers at the Moscow International Business Center, also known as Moscow City, in Moscow, Russia, April 14, 2022. REUTERS / Maxim Shemetov
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- Russia paid rubles on dollar bonds
- The bonds had no provision for payments in rubles – Moody’s
- Russia has fallen into default on foreign bonds since the 1917 revolution
- Russia’s economy is facing its worst year since 1994
LONDON, April 15 (Reuters) – Moody’s said Russia could be in default for trying to service its dollar-denominated bonds, which would be one of the most serious consequences of Moscow’s exclusion from the Western financial system. after President Vladimir Putin’s invasion of Ukraine.
If Moscow is declared a default, it will mark Russia’s first major bankruptcy in foreign bonds since the 1917 Bolshevik revolution, although the Kremlin says the West is imposing bankruptcy by imposing crippling sanctions.
Russia made a payment due on April 4 on two government bonds – maturing in 2022 and 2042 – in rubles, not in dollars, which it was obliged to pay under the terms of the securities.
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Therefore, Russia can be considered a default according to Moody’s definition if it is not cured by May 4, which is the end of the grace period, a statement from Moody’s said on Thursday.
“Bond contracts do not provide for payment in any currency other than dollars.
Moody’s said that while some Russian Eurobonds issued after 2018 allow payments in rubles under certain conditions, those issued before 2018 – such as those maturing in 2022 and 2042 – do not.
“Moody’s muse is that investors did not receive the contractual promise in foreign currency on the due date,” Moody’s said.
Russia’s finance ministry did not respond to a request for comment on Friday. Finance Minister Anton Siluanov told the Izvestia newspaper earlier this month that if Russia is forced to meet its obligations, it will take legal action.
Prior to Putin’s February 24 order on what he described as a special military operation in Ukraine, Russia was considered an investment class. But its sovereign bonds have become a target for what the Kremlin says is an economic war waged by the United States.
Russia failed to repay a $ 40 billion domestic debt in 1998 and devalued the ruble under President Boris Yeltsin as it virtually went bankrupt after the Asian debt crisis and falling oil prices shook confidence in its short-term ruble debt.
In 1918, the Bolshevik revolutionaries under Vladimir Lenin rejected tsarist debt, shocking global debt markets because Russia then had one of the largest piles of foreign debt in the world.
This time, Russia has the money, but it can’t pay because the reserves – the fourth largest in the world – that Putin ordered to be accumulated just for such a crisis have been frozen by the United States, the European Union, Britain and Canada.
DEFAULT
Since Russia could not and would not take out a loan at the moment, the bankruptcy would be largely symbolic, marking the tumultuous end of its post-Cold War attempt to integrate into the financial architecture of the West.
While Russia has only $ 40 billion in outstanding international bonds in issues of $ 15 or euros, its corporations have accumulated significantly more foreign debt.
The US Treasury Department this month halted Russia’s ability to use foreign exchange reserves held by Russia’s central bank with US financial institutions to pay off its debt. Read more
The Kremlin says the West has no longer fulfilled its obligations to Russia by freezing its reserves, and that it wants a new system to replace Bretton Woods’ financial architecture created by Western powers in 1944.
Earlier this month, S&P downgraded Russia’s foreign currency rating to “selective default” due to increased risks that Moscow will not be able and unwilling to meet its commitments to foreign debt holders. Read more
Russia’s economy is shrinking from its worst contraction since the fall of the Soviet Union in 1991, with rising inflation and capital flight. Read more
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Report by Guy Falkonbridge. Edited by Kim Cogill and Francis Carey
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