LONDON, March 16 – The economic cost of Russia’s attack on Ukraine became even clearer on Wednesday as the sanctions-hit country teetered on the brink of its first international debt default since the Bolshevik revolution.
Moscow must pay $117 million in interest on two dollar-denominated sovereign bonds it sold in 2013. even experienced investors guess what might happen.
One described it as the most closely watched public debt payment since the Greek default at the height of the eurozone crisis. Others say the grace period, which gives Russia another 30 days to make a payment, could drag out the saga.
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“The thing about defaults is that they are never clear-cut, and this is no exception,” said Pictet emerging markets portfolio manager Guido Chamorro.
“There is a grace period so we don’t really know if it’s a default or not until April 15,” he said, referring to the situation if the coupon payment is not made. “Anything can happen in a grace period.”
Lenders had not received funds by close of business in London, two people familiar with the situation said.
Meanwhile, Russian Finance Minister Anton Siluanov said that Moscow had made the payment, which had gone to the appropriate US bank, and that Washington now had to find out if a settlement was possible. More
A Russian government default was unthinkable until what Russian President Vladimir Putin calls a “special military operation” in Ukraine began in late February.
He had nearly $650 billion in foreign reserves, investment-grade credit ratings from S&P Global, Moody’s and Fitch, and made hundreds of millions of dollars a day selling his oil and gas at skyrocketing prices.
Then the tanks rolled, and the US, Europe, and their Western allies fired back with unprecedented sanctions that froze two-thirds of Russia’s reserves, which were found to be abroad.
“I think the market is now expecting Russia to not make payments[on bonds],” Jeff Grylls, head of emerging markets debt at Aegon Asset Management, said, adding that the conflict was one of the few events in emerging markets that could really alarm the global situation. markets.
This is because Russia’s role as one of the world’s leading producers of raw materials has sent prices and global inflation skyrocketing.
At the same time, he has turned Russia into a rogue state, crippled by sanctions and watching hundreds of the world’s largest firms leave the country, deciding that their presence there is no longer appropriate.
Russian default on international debt looms
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As for Russia’s battered government bonds, most are now changing hands for as little as 10-20% of their face value.
Wednesday’s two payments are the first of several, with another $615 million due by the end of March, and the first “principal” – the final full payment on the bond – will take place on April 4 for $2 billion.
Seasoned investors see three possible scenarios for how Wednesday’s crucial deadline ends.
First, Moscow pays in full and in dollars, which means that fears of a default disappear for a while.
Russia’s major energy suppliers, Gazprom and Rosneft, have made payments on international bonds over the past 10 days, so there is still little hope that this can be done if Moscow deems it in its best interest.
The second possibility is that Moscow is not paying, triggering a 30-day grace period before default.
A third option is also possible, when Russia pays, but in rubles, although according to the legal terms of the bonds, this is still tantamount to a default. The 30-day grace period will still apply.
“Maybe we’ll find out today (if they pay), maybe we won’t,” Pictet’s Chamorro said. His firm does not own bonds, but it does own other Russian debt, and when a country defaults on one of its bonds, it usually means that all of its bonds are “cross-defaulted.”
“In situations like this, it’s safest to expect the unexpected. In fact, nothing can be ruled out.”
Fortress Russia collapsed under sanctions
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Reporting by Mark Jones; Edited by Lincoln Fist, Katherine Evans and Philippa Fletcher.
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