S&P reduced Russia’s foreign currency rating to “selective default” Saturday due to the increased risk that Moscow may not be able or willing to honor its obligations to foreign debtholders.
Russia may face sanctions for its invasion of Ukraine. This is after Russia made arrangements to repay an international bond in rubles, despite the fact that it was due in dollars.
S&P stated in a statement that it understood Russia had paid coupon and principal payments in rubles to Eurobonds denominated in dollars on Monday.
“Currently, we don’t believe that investors will be in a position to convert the ruble payments into dollars equivalents to the original due amounts or that the government will convert these payments within a 30-day grace.
The agency stated that Russia is likely to face additional sanctions in the weeks ahead, which will “hamper Russia’s willingness to honor its obligations to foreign debtholders”.
Russia’s finance minister said Thursday that Russia will pay all its creditors. However, investors in Russia’s international bonds are facing an uncertain path to recovering their money if Russia defaults.
S&P gives a selective default rating to a debtor if it believes that the debtor has selectively defaulted in respect of a particular issue or class of obligations, but will continue to pay its obligations on other issues and classes of obligations.
Russia has not defaulted in respect of its external debts since 1917, but these bonds are now a flashpoint in Russia’s economic dispute with Western countries.
A default was not possible until recently. Russia was rated investment grade during the period leading up to its invasion of Ukraine on February 24, which Moscow called “special military operations”.
