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Moody’s believes that Russia may be in default on foreign bonds

On Friday, Moody’s said Russia could be in default because it was trying to service its dollar bonds in rubles, which will be one of the most striking consequences of Moscow’s exclusion from the Western financial system after President Vladimir Putin’s invasion of Ukraine.

If Moscow defaults, it will be Russia’s first serious default on foreign bonds since the 1917 Bolshevik revolution, although the Kremlin says the West is forcing it to default by imposing severe sanctions.

Russia paid on April 4 for two sovereign bonds – maturing in 2022 and 2042 – in rubles, not in dollars, which it had to pay in accordance with the terms of the securities.

“Therefore, Russia can be considered a default under Moody’s definition if not cured by May 4, which is the end of the grace period,” Moody’s said in a statement on Thursday, adding: “Bond contracts do not provide for redemption in any other case. “. currencies other than dollars ”.

Moody’s said that while some Russian Eurobonds issued after 2018 allow payments in rubles on certain conditions, those issued before 2018, for example, with maturities in 2022 and 2042, do not allow.

“It is said that investors did not receive a contractual promise in foreign currency on the date of payment,” – said in Moody’s.

Russia’s finance ministry did not respond to a request for comment on Friday. This was announced by Finance Minister Anton Siluanov Notices the newspaper earlier this month said that if Russia is forced to default, it will take legal action.

Prior to Putin’s invasion of Ukraine on February 24, Russia was rated as an investment rating. But its sovereign bonds have been targeted by what the Kremlin sees as an economic war waged by the United States.

Russia defaulted on a $ 40 billion domestic debt in 1998 and devalued the ruble under President Boris Yeltsin because it effectively went bankrupt after the Asian debt crisis and falling oil prices shook confidence in its short-term ruble debt.

In 1918, the Bolshevik revolutionaries under Vladimir Lenin renounced tsarist debt, shocking the world’s debt markets, because then Russia had one of the largest piles of foreign debt in the world.

This time, Russia has the money, but it can’t pay, because the reserves – the fourth largest in the world – that Putin ordered to create for such a crisis, frozen by the United States, the European Union, Britain and Canada.

Since Russia could not and would not take loans now, the default would be largely symbolic, marking the tumultuous end of its attempt to integrate into the West’s financial architecture after the Cold War.

While Russia has only $ 40 billion in international bonds maturing at $ 15 or euros, its corporations have accumulated much more foreign debt.

The U.S. Treasury this month suspended Russia’s ability to use foreign exchange reserves held by Russia’s central bank in U.S. financial institutions to pay off debt.

The Kremlin says the West has failed to meet its obligations to Russia by freezing its reserves, and that it wants the new system to replace the Bretton Woods financial architecture established by Western nations in 1944.

Earlier this month, S&P downgraded Russia’s foreign currency ratings to “electoral defaults” due to an increased risk that Moscow will not and will not be able to meet its obligations to foreign debt holders.

The Russian economy is running to its worst contraction since the fall of the Soviet Union in 1991 with rapid inflation and capital flight.

Reuters

Moody’s believes that Russia may be in default on foreign bonds

Source link Moody’s believes that Russia may be in default on foreign bonds

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