MILAN The Ministry of Finance of Russia said that a foreign bank refused to process the payment of 649.2 million public bonds dollar on its Eurobonds are due and that the payments have been completed ruble.
The agency Bloomberg reports and this is an event with significant potential, because exposes the country to a technical failure in the guesswork of the rating agencies.
Russia knows this well and has indeed specified through the Kremlin spokesman Dmitry Peskov that theoretically it could default, but that would be it an artificial situationThere are no grounds for a real default, the spokesman quoted by Reuters said, adding that Russia has all the funds it needs to meet its commitments but will continue to repay its external debt in rubles while its foreign exchange reserves remain frozen under sanctions .
In this case, payments in greenbacks related to commitments in dollardenominated Eurobonds due this month and April 2042 were sent but rejected, according to Mosca. As a result, “a Russian financial institution had to be brought in to make the necessary payments.” Payments were then made in the currency of the Russian Federation.
The dynamic appears to be one given that the payment dates back to April 4th direct consequence of the determination that the US Treasury Department which were issued on the same day and which prevented the Moscow government from paying for the bonds through current accounts in US banks.
US pushes Russia into default: Stop payments through US banks
by Carlotta Scozzari April 05, 2022
On March 15, Fitch Ratings issued a document stating that under its rating criteria, any payment of the coupons (due at the time) on a dollardenominated local currency Eurobond would constitute a sovereign default at the end of the 30day grace period. After an initial delay, Mosca communicated the payment. On March 25, Fitch withdrew its rating from Russia over European sanctions.
Sources from the environment of the rating agencies point out that not only the currency expected for payments from the legal documentation of the bond, but also the actual ability of the issuer to reach investors with the cash flow must be considered. An operation that is not a matter of course given the restrictions on Moscow’s transactions in the financial markets. The technical default is thus triggered: if payment in local currency instead of dollars is not provided for in all contractual documents governing the issue; or if the investors cannot receive the payment. It is therefore necessary to have a full analysis of the documents and the end of the grace period (30 days) before the default judgment is issued.
According to reports from both Bloomberg and the Financial Times, however, this would not be the case for issues that provide for the ability to switch to ruble payment if payment in dollars or euros is not possible, as provided for by some treaty footnotes. According to reports from the ministry, the foreign bank, whose name has not been released (in the past, Jp Morgan was the role of the bank that processed such payments), refused Russia’s request for payment of its bonds and has also not processed the payment of the bonds’ face value of the Eurobond due in 2022.
Russia may consider allowing foreign holders of its 2022 and 2042 Eurobonds to convert ruble payments into foreign currencies once Russia’s access to its foreign currency accounts is restored, the ministry, quoted by Reuters, added. The same agency recalls that the spotlight is on Russia’s ability to meet its debt obligations after sweeping Western sanctions on Ukraine’s “special military operation” froze almost half of the country’s state reserves and restricted Moscow’s access to global payment systems.