RUSSIA MISSES DEADLINE ON DEBT PAYMENTS

Mon 27 June 2022:

Russia has missed the deadline on payment of its foreign-currency sovereign debt for the first time in a century as the 30 day grace period on about $100m of two bond payments due on May 27 expired on Sunday.

The deadline is considered an event of default if missed, according to Bloomberg.

Russia has struggled to keep up payments on $40bn of outstanding bonds since its invasion of Ukraine on February 24, which provoked sweeping sanctions that have effectively cut the country out of the global financial system and rendered its assets untouchable to many investors.

The Kremlin has repeatedly said there are no grounds for Russia to default but is unable to send money to bondholders because of sanctions, accusing the West of trying to drive it into an artificial default.

While a formal default would be largely symbolic given Russia cannot borrow internationally at the moment and doesn’t need to, thanks to rich oil and gas revenue, the stigma would probably raise its borrowing costs in future.

The default will trigger repayments on a large chunk of Russia’s debt, according to Chris Weafer, former chief strategist at Russia largest bank Sberbank-CIB and chief executive at Moscow-based consultancy Macro Advisory.

“Some parts of that debt will now become automatically due because there will be early repayment clauses in all debt instruments so if you default on one it usually triggers the immediate demand for payment on the other debts, so Russia could certainly face immediate debt repayment of about $20bn at this stage,” he told the BBC’s Today programme.

The last time Russia defaulted on its foreign debt was in 1918, during the Bolshevik Revolution when the new communist leader Vladimir Lenin refused to pay the debts of the Russian Empire.

Russia’s last debt default of any kind was in 1998 as the country was rocked by the rouble crisis during the chaotic end of Boris Yeltsin’s regime. At the time Moscow failed to keep up payments on its domestic bonds but managed not to default on its overseas debt.

SOURCE: INDEPENDENT PRESS AND NEWS AGENCIES

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