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 looks to swerve default with last-minute dollar bond payment

Stock Markets Apr 29, 2022 10:30PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Pedestrians walk past Russia's Finance Ministry building in Moscow, Russia March 30, 2021. A sign reads: "Ministry of Finance of the Russian Federation". REUTERS/Maxim Shemetov/File Photo

By Marc Jones and Andrea Shalal

LONDON/WASHINGTON (Reuters) - Russia made what appeared to be a late U-turn to avoid a default on Friday, as it made a number of overdue interest payments in dollars on its overseas bonds, despite previously vowing to pay only in roubles as long as its reserves remained frozen.

Russia's $40 billion of international bonds have become the focus of a game of financial chicken amid sweeping Western sanctions - and speculation about a default is likely to revive in less than four weeks, when a U.S. license allowing Moscow to make payments is due to expire.

Russia's finance ministry said it had managed to pay $564.8 million in interest on a 2022 Eurobond and $84.4 million on another 2042 bond in dollars - the currency specified on the bonds.

A senior U.S. official confirmed Moscow had made the payment without using reserves frozen in the United States, adding that the exact origin of the funds was unclear.

Deputy U.S. Treasury Secretary Wally Adeyemo told Reuters that the payments siphoned funds away from Russia's Ukraine war effort and were a "sign of success" for U.S sanctions policy.

He declined to comment on the future of a Treasury general license due to expire on May 25 that allows banks to process Russian debt payments.

"Our overarching goal is to try to starve Russia of the resources that they're using to both prop up their economy and finance their war effort, and to stop their invasion of Ukraine. So we're going to keep making policy decisions with that in mind," Adeyemo said.

Russia said it had channelled the required funds to the London branch of Citibank, one of the "paying agents" whose job it is to disburse them to the bondholders.

Citibank declined to comment.

"The payments were made in the currency of issue of the corresponding Eurobonds – in U.S. dollars," the Russian Finance Ministry said. "Thus, the obligations to service sovereign Eurobonds are fulfilled."

Two holders of the bonds said they had not yet received the funds, but the process can take days.

"I don't see a reason why they (the paying agent) cannot make that payment," said Kaan Nazli, portfolio manager for the Emerging Markets Debt team at Neuberger Berman, which holds Russian sovereign bonds.

Despite the payment announcements, preparations for an auction to settle credit default swaps - insurance against default, in this case Russian - were still being made.

The Credit Derivatives Determinations Committee met on Friday and acknowledged the reports of Russia's payments, but regardless prepared for a CDS auction next week "solely in order to prepare for the possibility of a Failure to Pay Credit Event."

Russia's Sberbank separately said it had paid coupons on two subordinated eurobond issues in roubles because sanctions by the United States and Britain prevented it from making payments to investors in line with its initial commitments.

BONDS SOAR

Russia has not had a default of any kind since a financial crash in 1998 and has not seen a major international or 'external' market default since the aftermath of the 1917 Bolshevik revolution.

The risk of another one is growing, however, as Western countries have blanketed Russia with sanctions in response to its invasion of Ukraine, which Moscow has termed a "special military operation" to disarm Ukraine and root out what it calls dangerous nationalists. 

The interest payments were supposed to be paid earlier this month but a 30-day 'grace period' that government bonds often have in their terms meant Moscow's final deadline was May 4.

Brokers said the announcement sent Russian government bond prices up as much as 15 cents, almost doubling their dollar value in some cases. Those belonging to major still-unsanctioned companies such as Gazprom (MCX:GAZP), Lukoil and telecoms firm VimpelCom (NASDAQ:VEON) were quoted up 2-5 cents too.

Five-year CDS linked to Russia's sovereign debt went down to 64.333% upfront from 76.4% upfront on Thursday, according to S&P Global (NYSE:SPGI) Market Intelligence.

BlueBay's Tim Ash called Russia's move "pretty extraordinary", pointing out too that the key group of international banks and funds that judge whether a default has happened had recently ruled that it had.

The prospect of a default by Russia was almost unthinkable before its invasion of Ukraine. The billions of dollars it earns from selling oil and gas around the world meant it had one of the world's lowest government debt levels and an enormous stockpile of currency reserves.

However, Western sanctions have frozen a large chunk of those reserves, and mean banks have needed special dispensations to make any Russian-related payments.

Andy Sparks, managing director at index provider MSCI, said the prospect of a default still loomed large if the U.S. Treasury allows the Russian debt payment license to expire on May 25.

Russia has another bond payment just two days after that which means that, if the U.S. waiver is not extended, it will be almost impossible for Moscow to avoid a default.

"The real question is whether this is just delaying the inevitable," Sparks said.

"Most investors will take that date of May 25 very seriously and many will not expect that exception to be extended."

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Russian (default) roulette https://tmsnrt.rs/39qVubj

RPT-ANALYSIS-As Russia faces potential default, investors weigh legal options

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Russia looks to swerve default with last-minute dollar bond payment
 

Related Articles

Wall Street dips after Fed minutes published
Wall Street dips after Fed minutes published By Reuters - Jul 06, 2022 21

By David French NEW YORK (Reuters) - U.S. stock indexes dipped on Wednesday after edging briefly higher in the wake of the publication of the minutes from the latest Federal...

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 (3)
Khairul Bakhtiar
Khairul Bakhtiar Apr 30, 2022 3:28AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Arrogant U.S administration. Hope China take over soon on economy... let them feel what pain is...
Trevor Roberts
LimitUp Apr 30, 2022 3:28AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
China is the land of true liberty🤡
gab nea
gab nea Apr 29, 2022 10:41PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the only reason the wacky trumpists like the red communist russian president putin better than the american president because he is also a compulsive liar.
Trevor Roberts
LimitUp Apr 29, 2022 10:41PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I will point this out again, all American Communists are in the democrat party. Facts are inconvenient.
Chris Sundo
Chris Sundo Apr 29, 2022 1:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Putin should pay into Russian banks from the 200 Billion he stole from Russia's people. He is sitting on that money which is being used to trade for profits in his Swiss banks.
Chuck Monaco
Chuck Monaco Apr 29, 2022 1:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
200 billion in swiss banks? That sounds like a very karge amiunt. Swiss authoriites claim they frozen some 10 billion.
Trevor Roberts
LimitUp Apr 29, 2022 1:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
 
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