Russia to “Default” if Dollar Coupons are Paid in Rubles

According to Fitch Ratings, Russia could default if it fails to pay the U.S. dollar coupon payments due Wednesday on its dollar debt. This grace period is a 30-day one. Some of Russia’s ruble-denominated bonds are also in danger.

The nation’s foreign-currency side has $117million in interest payments due Wednesday. This is a crucial moment for debt holders, who have seen their investments fall since Russia invaded Ukraine last October. These are the first non-ruble debt obligations due since the Moscow-based government stated it would treat creditors in countries that have joined sanctions against Russia after the invasion of Ukraine.

Separately, the country will be in default if, within 30 days from a March 2 date, it doesn’t “cure” its obligations regarding ruble-denominated coupon coupons due earlier in the month. Fitch stated this in a document Tuesday about how to understand possible sovereign default events. This makes April 1 a key date for Russia, which hasn’t defaulted in local currency bonds since 1998. The last time it failed to meet its foreign-debt obligations was back in 1918 after the Bolshevik revolution.

Fitch stated that Russia’s Eurobond coupons worth US$16 March must be paid in local currency. This would constitute a sovereign default upon expiry of the 30-day grace. This kind of “forced redenomination payment obligations” would be consistent in Fitch’s previous decision of reducing Russia’s foreign currency credit rating to the lowest level of C. “Indicating that a default has begun or an equivalent process has started,” the assessor stated.

Fitch’s Tuesday release also mentioned Russia’s “failure credit non-resident investors” in regards to the coupons for Russian local currency government bonds (known as OFZs), which were due March 2.

Fitch stated that while we understand that Russia’s Ministry of Finance made these coupons payments on the 2024 OFZs to National Settlement Depository but they weren’t paid to foreign investors due to restrictions by the Central Bank of Russia. If the payment is not made within 30 days, it will be considered a default.

In the weeks following Russia’s invasion of Ukraine, other rating agencies have also reduced Russia’s debt ratings. S&P Global Ratings rates Russia at CCC while Moody’s Investors Service ranks the country at Ca. Fitch, who has warned of a default on bonds in the past, said Tuesday that its latest statement does not constitute a new rating.

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