Russia’s creditors await funds as Moscow says it paid off its debt

Russia said on Thursday it had made debt payments due this week, but the announcement did not end waits for what could be Moscow’s first default on a foreign loan in more than a century, as creditors said they had not yet received the funds.

Moscow was due to pay $117 million in coupons on two dollar-denominated sovereign bonds on Wednesday, seen as the first test of whether it will meet its obligations after the imposition of Western sanctions.

From the deadline on Wednesday you have a grace period of 30 days.

Sanctions imposed over Moscow’s invasion of Ukraine have isolated Russia from the global financial system and locked up most of its gold and foreign exchange reserves, while Moscow itself has imposed countermeasures, all of which complicate payments. .

Russia’s Finance Ministry said on Thursday that its order to pay the $117 million was fulfilled and that it will inform the market separately whether the payment was deposited into the account of the paying agent Citibank.

Citi’s London branch declined to comment, but several creditors and sources familiar with the situation in Asia and Europe said the funds had not yet been received by bondholders.

The Ministry of Finance had planned to send the equivalent amount of the interest payment in rubles if the payment in dollars did not reach foreign bondholders, something that, according to the credit rating agency Fitch, would constitute a default on the sovereign debt if not was corrected in a grace period of 30 days.

Typically, a country pays its creditors abroad by sending the money to a correspondent bank, which transfers the funds to the title’s paying agent, in this case Citi, before it goes to the individual holders’ deposit accounts. through the liquidation steps to confirm ownership of the assets.

The array of international sanctions has raised questions about whether such complex, multi-step transactions would run into difficulties, not least because Russia’s central bank is among the institutions targeted by Western sanctions.

“The fact is that from the beginning we have said that Russia has all the necessary funds and potential to avoid a default; there can be no defaults,” Kremlin spokesman Dmitry Peskov said at an appearance on Thursday. “Any default that could occur would be totally artificial.”

Russia has 15 international bonds with a face value of about $40 billion outstanding, about half held by international investors.

The coupon payments due March 16 are the first in a series of maturities, with another $615 million due later in the month. The first principal payment is due on April 4, with a $2 billion bonus.

The bonds themselves have been issued with a mix of terms and clauses. Those sold after Russia faced sanctions over its annexation of Crimea in 2014 contain a provision for alternative currency payments. Those listed after 2018 have rubles as an alternative currency option.