LONDON (Reuters) -A derivatives panel has ruled on Wednesday that Russia could be in default after it failed to make a payment due on April 4 in U.S. dollars on two sovereign bonds, bringing a payout on billions of dollars in default insurance a step closer.
The credit derivatives determinations committee said a "potential failure to pay" had occurred after Moscow made a payment in roubles rather than the dollars it was mandated to pay under the terms of the instruments.
Moscow said it had to make the payment in roubles after the U.S. Treasury prevented Russia from using any of its frozen foreign currency reserves to service its debt. Moscow has a 30-day grace period on the $649 million payment which ends on May 4.
Russia has not defaulted on its external debt since it reneged on Tsarist debt in the wake of the 1917 Bolshevik revolution.
The ruling by the committee could trigger a payout on so-called credit default swaps (CDS)- instruments that provide investors with insurance against exposure to specific risks, in this case Russia defaulting on its sovereign debt.
Investment bank JPMorgan estimated last week that there were currently $3.43 billion of net notional Russia CDS to be settled, including $2.48 billion from single name and the remainder from CDS indexes.
The committee, which decides on the possible payout of credit default swaps on Russian sovereign debt, is made up of members from major banks and investment houses such as Bank of America (NYSE:BAC), Citibank, JPMorgan Chase (NYSE:JPM) and PIMCO.