Russia on Wednesday moved one step closer to defaulting on its foreign exchange debt after the country’s finance ministry said it was forced to pay its dollar-denominated bond holders in rubles.
The decision to pay in Russian currency came after the U.S. Treasury Department barred U.S. banks from conducting dollar payments from Russia, closing সোমবার 649 million in interest and principal arrears on Monday. The so-called correspondent bank JPMorgan, which is responsible for conducting the transaction, has refused to process cash after seeking guidance from US authorities, a source familiar with the matter said.
“Because of the unfriendly actions of the US Treasury. . . Russia’s finance ministry was forced to involve a Russian financial institution in providing the necessary funds, “the ministry said in a statement on Wednesday. Instead, remittances will be made to Russian ruble-denominated accounts and revenues can be converted into dollars after “restoring access to the Russian Federation’s foreign currency accounts,” it added.
The move repeats Russia’s earlier threat to repay debts in rubles, when Western sanctions barred bondholders from receiving dollars. Foreign investors generally view such a move as a default amount, the first such move by Moscow since the 1998 Russian debt crisis. The process has started by default. “
However, Kremlin spokesman Dmitry Peskov reiterated on Wednesday that freezing its foreign reserves after Russian President Vladimir Putin’s invasion of Ukraine in February was an attempt to push it toward an “artificial default”.
“Russia has all the resources it needs to pay off its debts,” Peskov told reporters in a conference call.
“A significant amount of our reserves have been frozen in foreign countries, you know. So if they continue to be blocked in this way and if transfers from frozen amounts are also blocked, they will be serviced in rubles, “Peskov said.
“In other words, there is no basis for actual default. No one, not even close. “
Some Russian foreign currency bonds contain terms in their small print that allow payments in rubles if they cannot be made in dollars or euros, but a dollar bond that matures on Monday and a bond that matures in 2042 that caused a coupon to be issued on Monday. Not in them.
A holder of a Russian dollar bond said he did not think it would be possible to set up a “Type C” account at a Russian bank required to receive ruble payments without violating sanctions.
“If the bondholders do not receive their money, they will assume that it is a default,” said Christian Maggio, head of TD Securities’ emerging market portfolio strategy. “But the Russians argue that they are willing to pay. This is a very unusual situation and could eventually lead to legal action in various jurisdictions where investors hold bonds. “
