Russia close to default on its debt – Bondholders paid in roubles

Russia moved closer to defaulting on its international debts on Wednesday when it paid dollar bondholders with roubles. It also stated that it will continue to do this as long as sanctions don’t block its foreign currency reserves.

  • On Monday, Russia’s bond payment was due in U.S. Dollars
  • U.S. Treasury has stopped paying debts from frozen reserves
  • Russia credit default swaps rise sharply
  • International creditors face stringent capital controls
  • U.S. announces new sanctions against banks and officials

The United States on Monday stop Russia from paying its sovereign debt holders more than $600m from its frozen reserves held at U.S. Banks. Moscow was forced to choose between defaulting or draining its dollar reserves.

Russia has not defaulted on its foreign debt since it reneged on payments due following the 1917 Bolshevik Revolution. However, its bonds have been remerged as an issue in the diplomatic crisis.

One fund manager who held one of the bonds up for payment Monday stated that this “speeds up the timeline around Russia’s willingness and ability to repay.”

According to the Kremlin, it will continue to pay its debts.

Russia has all the resources necessary to service its debts. Dmitry Peskov, a spokesperson for the Kremlin, said that Russia has all the necessary resources to service its debts if this blockade continues.

Moscow managed to make foreign currency coupon payments on some 15 of its international bonds, which had a face value of around $40 billion. These transactions were stopped by the United States.

Russia’s finance ministry announced Wednesday that it would pay roubles for holders of Eurobonds in dollar-denominated dollars due to mature in 2022 and 2042. This was because a foreign bank refused to pay $649 Million to holders of sovereign debt.

According to the finance ministry, the foreign bank it didn’t name rejected Russia’s request to pay coupon bonds on the two bonds. It also refused payment of the Eurobond due in 2022.

Russia’s ability is now in focus to meet its debt obligations after the sweeping sanctions imposed in response to “a special military operation” in Ukraine have frozen almost half of its reserves and restricted access to global payment networks.

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