Early in April observers discovered that Russia had actually defaulted on a bond payment. The $649 million payment was required to be made in US dollars however after the United States tightened restrictions on the Russian Central Bank’s use of reserves kept in United States banks, Russia declared it had no chance to pay in dollars. Rather it put a comparable quantity in rubles into an account and Putin’s regime declared that it considered the financial obligation paid, but contracts don’t work that way.
Since the payment had a 30-day grace duration, absolutely nothing occurred right away. Long as Russia discovered a method to make the payment in dollars within that thirty days, it would not be considered a default.
As Ed pointed out Monday, S&P revealed that by declining to pay in dollars, Russia had entered a “selective default.” “Sanctions on Russia are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical abilities to honor the terms and conditions of its obligations to foreign debt holders,” S&P said.
Today, Moody’s has joined the chorus by announcing that Russia will be in default if it does not come up with the money (in dollars) by May 4:
Moody’s said that Russia still has until May 4, when the grace period ends, to make the payments in dollars and avoid a default on two bonds that are maturing in 2022 and 2042. The payment terms of the original bond contracts required dollars and did not include a provision to allow for another currency.
“Moody’s view is that investors did not obtain the foreign-currency contractual promise on the payment due date,” the ratings agency said.
Business Insider spoke to two bondholders who said they can’t accept payment in rubles both because the bond contracts don’t allow it and also because converting the money to dollars would violate current sanctions.
Two bondholders have told Insider that they cannot accept rubles, however, because the contracts of the bonds stipulate payments in dollars and because sanctions have restricted involvement with Russian financial institutions.
One US bondholder, who asked not to be named discussing a sensitive topic, told Insider they considered it a “moot point” because the contracts of the bond specify payment in dollars, so they could not legally accept any other currency.
Russia has 20 days left to resolve this issue or it will likely be considered in default. The equipment is currently in motion to make such a statement:
The Credit Derivatives Determinations Committee, which includes the world’s top financial institutions, will meet on April 20 to discuss whether a “potential failure to pay event” has occurred. Such a finding would be a key step on the road to officially deeming Russia to have defaulted, at least in the eyes Western banks.
What takes place if Russia defaults? For something, they’ll have difficulty drawing in any foreign financial investments for a while, making it more difficult to climb up out of the hole they are now in.
Selling bonds is a critical way that countries raise foreign currencies to fund projects and raise reserves of foreign currencies, among other purposes.
But the European Union is considering a ban on energy imports from Russia, which would further limit Russia’s ability to raise money in foreign currencies.
Countries that have defaulted on their bonds have eventually been welcomed back to global debt markets, but memories of a default linger and Russia may have to pay more to borrow from foreign investors in the future.
Once again, this isn’t rather over yet however up until now there’s no indication that Russia plans or desires to change course.
H/T Hotair
