Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Russia warns sovereign bond holders that payments depend on sanctions

Forex Mar 06, 2022 01:35PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Russian rouble coins are seen in this illustration taken, February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Guy Faulconbridge and Karin Strohecker

LONDON (Reuters) -Russia said on Sunday that sovereign bond payments will depend on sanctions imposed by the West over the invasion of Ukraine, raising the spectre of its first major default on foreign bonds since the years following the 1917 Bolshevik revolution.

Russia's finance ministry said it would service and pay sovereign debts in full and on time but that payments could be hampered by the international sanctions.

"The actual possibility of making such payments to non-residents will depend on the limiting measures introduced by foreign states in relation to the Russian Federation," the finance ministry said in a statement.

That raises the possibility of a technical default on debt by Russia after much of its $640 billion in reserves were frozen by the West after President Vladimir Putin ordered what Russia describes as a special military operation in Ukraine on Feb. 24.

From now on, Russia will use roubles to make payments to residents on bonds denominated in foreign currency, the ministry said.

The finance ministry in Moscow also explicitly said that Russia might not be able to make bond payments because of restrictions imposed by the Russian government.

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

This time, Russia has the money but can't pay because the reserves - the world's fourth largest - that Putin ordered be built up for just such a crisis are frozen by the United States, European Union, Britain and Canada.

It could be Russia's first major debt default in more than a century. Even when the Soviet Union collapsed, Russia assumed its foreign debt.

In 1918 Bolshevik revolutionaries under Vladimir Lenin repudiated Tsarist debt, shocking global debt markets because Russia then had one of the world's biggest foreign debt piles.

With the bonds worth nothing, some holders of the Tsarist notes used them as wallpaper. The Soviet Union under Josef Stalin stopped servicing loans to the United States and Sweden after World War Two.

RUSSIAN DEFAULT

While Russia has only $40 billion in international bonds outstanding across 15 dollar or euro-denominated issues, its corporates have built up vastly more foreign debt.

The eurobonds have been issued with a mix of terms and indentures.

Notably, bonds sold after Russia was sanctioned over its 2014 annexation of Crimea contain a provision for alternative currency payments in dollars, euros, British pounds or Swiss francs, with the rouble listed as an alternative currency option for bonds issued since 2018.

On March 16 Russia is due to pay $107 million in coupons across two bonds, though it has a 30-day grace period to make the payments. The next full 'principal' repayment is a $359 million 2030 bond on March 31 and then a larger $2 billion maturity on April 4.

Russian gas giant Gazprom (MCX:GAZP) has a $1.3 billion dollar bond due for repayment on March 7.

According to JPMorgan (NYSE:JPM), the OFZ bond market totalled 15.5 trillion roubles, or about $200 billion at January rouble rates, with foreigners holding a little less than a fifth of the bonds.

Earlier on Sunday, Moody's (NYSE:MCO) cut Russia's credit rating to Ca, the second-lowest rung of its ratings ladder, citing central bank capital controls that are likely to restrict payments on the country's foreign debt and lead to default.

Moody's said its decision was driven by "severe concerns over Russia's willingness and ability to pay its debt obligations".

The ratings agency said default risks had increased and that foreign bondholders are likely to recoup only part of their investment.

Moody's and its peers Fitch and S&P Global (NYSE:SPGI) had scored Russia at investment-grade levels of Baa3/BBB as recently as March 1. All three have since cut their ratings by several notches, sending Russia's sovereign debt deep into so-called "junk" territory.

($1 = 121.0370 roubles)

Russia warns sovereign bond holders that payments depend on sanctions
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Vitali Marcus Kh
VMarcus Mar 07, 2022 1:37AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
at the end, Putin is the biggest idiot who didn't do his homework on who are Ukrainians
Nils Hullmann
Nils Hullmann Mar 06, 2022 4:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Russia and China should 0nly accept Gold for Oil/ Resources and **** the whole western world
Fernando Saldanha
Fernando Saldanha Mar 06, 2022 4:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It would not have any significant effect except for raising the price of gold.
Yama Fazel
Yama Fazel Mar 06, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I dont understnd why the world is going slowly with sanction against russia. They should move smoodly that the people of russian should feel the pain and do standing up against their government.
CYRIL AFIABOH
CYRIL AFIABOH Mar 06, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
sanction is *****Russians now. they are protesting against the govt Putin is a full . Adolph ******of the 20the century
Brad Albright
Brad Albright Mar 06, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
New Jazenevd You are not paying attention. No country in the West is announcing that it may not be able to pay its debts. Russia is. Sanctions are working as intended. If you own Russian bonds, I suggest you be prepared to use them as wallpaper.
Ric Later
riclater211 Mar 06, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Because oil. USA turned off it's oil because feelings, Russia supplies a third of the oil to Eastern and western Europe, also https China.
Ric Later
riclater211 Mar 06, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sanctions are useless even the usa is buying 90-100 million barrels of oil a day. Western Europe is buying twice that in NAT Gas. At least my Oil futures contracts hit Target. Thanks Putin and slow uncle Joe 💲💲💲
William Smith
William Smith Mar 06, 2022 2:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The people of Russia are unarmed. All tyrants take the people's firearms.
Bob Ruppert
Bob Ruppert Mar 06, 2022 1:07PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
cutting off their nose to spite their face.
Pi Fo
Pi Fo Mar 06, 2022 12:52PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The bonds are junk.
Pete Dee
Pete Dee Mar 06, 2022 12:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
American and Japan.and Hong Kong markets to tank , same or more than European did on Friday.I am only long marijuana. 🚬 π 💊 chewgum. Medical 🚑 MARIJUANA CAN DO....TO REPLACE THE JAB.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email