Russia has two days left to avoid default

Russia’s bonds are due on June 23-24, which could lead to the first default on international debt in 100 years, reported Bloomberg agency. The publication recalled that the reason for non-fulfillment of obligations will not be the lack of funds from Moscow, but sanctions.

Russia needs to transfer a total of almost $400 million in two days, Bloomberg clarifies. In addition, about $ 100 million got stuck due to sanctions. (bond payments for May), the deferral for which expires on the evening of June 26 (Sunday). If the amount does not reach the addressee, then Russia “will actually be in a state of default” – it will formally be considered that the country was unable to pay off a certain number of debt holders.

At the same time, Moscow, the agency emphasizes, has money, because “billions of dollars of energy revenue pour into the Kremlin’s coffers every week“. But due to the inability to conduct transactions with the dollar and the euro, “ways to transfer funds are cut off,” and the country may not meet the deadlines.

The United States is seeking one thing, the publication says: to “punish” Russia for a special operation in Ukraine, assigning it “pariah status in the market for decades to comedue to the first default since 1918.

At the same time, Moscow would like to pay off its debts and is looking for ways to solve this problem, according to a Bloomberg publication. One of the options – payment in rubles, in which case the obligations will be considered fulfilled, the Russian side insists. Earlier, Finance Minister Anton Siluanov said that the government would transfer the required amount in rubles, which could then be converted into foreign currencies.

However, there are no clauses in the documents that allow Russia to pay the debt in rubles, while allowing an alternative in the form of euros, pounds sterling and Swiss francs, writes Bloomberg. If the Russian Ministry of Finance wants to choose one of these currencies, then it should notify bondholders at least five days before the transfer.

On June 24, Russia is due to transfer $159 million in bonds due to be repaid in 2028. But this is unlikely to happen, according to Bloomberg, because the restrictions imposed by the United States will allow this. In addition, the American bank JPMorgan Chase & Co, which suspended work with Russia’s public debt back in March, has been appointed as the paying agent.

How Russia ended up on the verge of default

Until the beginning of April, the United States allowed Russia to pay its debts from frozen foreign exchange reserves in American financial institutions. Then Washington forbade Moscow to use this mechanism to pay off its external debt. However, the Russian Ministry of Finance continued to fulfill its obligations to foreign investors, using unblocked currency from export earnings for payments. For this, as reported Bloomberg agency, the department carried out settlements with the help of dollar reserves of the Dom.RF state corporation, which avoided sanctions. Then the US blocked this way of payment as well.

The pre-default situation arose after On May 25, the US Treasury’s Office of Foreign Assets Control (OFAC) general license, which allowed holders of Russian sovereign bonds to receive payments for servicing and redeeming these securities, expired. Without this document, Russia will not be able to directly make payments in dollars, and will also experience problems with payments in euros. US way banned Russia to service external debt.

The Russian Ministry of Finance announced that it would continue to pay the debt, but in rubles. ISDA (International Swaps and Derivatives Association) has already announced that it will consider as a default payments on Russian Eurobonds in a currency not stipulated by the terms of issue. What the threat of a probable default means for Russia, RTVI explained here.

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