Russia sits closer to a foreign debt default than at any point in more than a century, cut to “selective default” by S&P Global Ratings after it tried to pay dollar bonds in rubles.
The mechanics are stark. Russia’s finance ministry said it attempted a $649 million payment on two bonds through a US bank, previously reported as JPMorgan Chase, but tightened sanctions blocked acceptance. So it paid in rubles instead, and S&P said it did not expect Russia to convert the money into dollars inside the 30-day grace period. Under the agency’s definition, a selective default means a borrower misses one payment while keeping others current.
Moody’s went further, saying Russia may already have defaulted. It noted payments on two bonds maturing in 2022 and 2042 were made in rubles against contract terms: “The bond contracts have no provision for repayment in any other currency other than dollars.” Ruble payment amounts to “a change in payment terms relative to the original bond contracts and therefore may be considered a default under Moody’s definition if not cured by 4 May, which is the end of the grace period,” the agency said. Only bonds issued after 2018 permit repayment in rubles, under some conditions.
Sanctions did the squeezing. After evidence of alleged war crimes, among them the killing of civilians in Bucha during Russian occupation, Washington barred Russia from using foreign reserves held at US banks to service debt. The Kremlin says it is still willing to pay, but warns it will use rubles for as long as its overseas foreign-currency accounts stay frozen. S&P expects sanctions “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 debtholders.”
History frames the stakes. The last foreign default dates to the Bolshevik Revolution of 1917, when the new Soviet state repudiated the Tsarist government’s debts. Even in the late 1990s it kept paying foreign creditors with international aid, though it did default on domestic debt.
Finance Minister Anton Siluanov has warned Russia would take legal action if forced into default. Ratings agencies had already pushed Russian debt to junk, and Moscow has leaned on capital controls and oil and gas revenue to prop up the ruble.
Both agencies’ clocks now run to early May: cure the ruble payments by 4 May, or the selective default hardens into the real thing.
Sources
- Russia may already be in default, Moody's says – CBS News
- S&P downgrade indicates Russia headed for historic default
