Russia may already be in default, says Moody’s

Russia may have defaulted on its foreign debt after attempting to make some bond payments in roubles, showing the devastating economic effects of the nation’s exclusion from the Western financial system following its invasion of Europe. ‘Ukraine.

Moody’s noted on Thursday that Russia had made payments on two bonds in rubles, rather than US dollars, which was contrary to the terms of the bond contracts.

“The bond contracts do not provide for any redemption in any currency other than the dollar,” the rating agency said in a statement.

The payments indicate “a change in payment terms from the original bond contracts and therefore may qualify as a default under Moody’s definition if not corrected by May 4, which is the end of the deadline. grace,” 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 payments in rubles under certain conditions, those issued earlier, including those maturing in 2022 and 2042, do not. not.

S&P Global Ratings last week downgraded Russia, saying the country was in “selective default” after making ruble payments. S&P also said it did not expect Russia to be able to convert rubles to dollars within the allowed 30-day grace period.

A selective default occurs when a borrower pays some debts but not others.

Russia has not defaulted on its foreign debt since the Bolshevik Revolution of 1917, when the Soviet Union emerged and repudiated the debts incurred by the previous Tsarist government. In the late 1990s, after the dissolution of the Soviet Union, Russia was able to continue paying its foreign debts with international aid. However, it defaulted on its domestic debt.

Contraction sanctions against the Russian financial system have made it more difficult for the government to access the hundreds of billions it holds in foreign exchange reserves. After evidence of alleged Russian war crimes in Ukraine emerged – the murder of civilians in the city of Bucha during the Russian military occupation – the United States prohibited Russia from using foreign exchange reserves held in American banks to pay its debts.

Russia’s Finance Ministry said last week that it attempted to make a $649 million payment for two bonds to a US bank, but that payment was not accepted due to sanctions.

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

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

The Associated Press contributed reporting.

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