©Reuters. Russia says it ordered payment of its debt, but does not guarantee payment for sanctions
Madrid, March 16 (.).- Russia has assured this Wednesday that it has given the order to pay the interest on its debt in dollars that was due today, 117.2 million, although it has specified that it cannot guarantee that the final creditor receive credit for the impact of the sanctions imposed on that country for the invasion of Ukraine.
“The possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us, we have the money and we have made the payment. Now the ball is in the court of the United States,” Russian Finance Minister Anton Siluanov said. to the RT media group.
Russia would incur the first non-payment of the external debt since the Bolshevik Revolution of 1917 for not paying the coupon of this issue in the established terms.
In addition, the rating agency Fitch has announced that it considers the payment of the coupon of this debt issue in rubles instead of in dollars to be equivalent to a suspension of payments, although Russia still has a grace period of 30 days to meet its obligations, until mid-April.
“We have already given the payment order, now the ball is in the court of the US authorities, in the first place,” said the minister, who assured that he cannot guarantee that the final investor will obtain the payment due to the impact of the sanctions that the Western countries have imposed on Russia for the invasion of Ukraine.
The head of Russian Finance believes that it is up to Western countries, mainly the United States, to withdraw these funds from dollar accounts that have been frozen to Russia by sanctions.
These are the first coupons in foreign currency to expire after the change in regulations made by the government of Russian President Vladimir Putin on March 5.
FITCH ADVANCES THE POSSIBILITY OF FURTHER LOWERING THE RATING
Fitch argues that its decision to equate the default in dollars to the suspension of payments is consistent with the reduction of Russia’s long-term debt that it decided on March 8, when it described the country’s issues as “extremely speculative” and in risk of bankruptcy or default (level C).
The C level in the long-term debt ratings is 19 steps below the maximum note, triple A, which is held by countries such as the United States, Germany and several countries in its financial sphere (Sweden, Norway, Denmark, the Netherlands and Luxembourg, among others). Spain is rated A-.
The rating entity clarifies that non-payment in dollars would imply a downgrading of these issues to restricted payment suspension (D), a rating that will also be given to long-term debt at the end of the grace period, one notch below that granted on March 8.
The Russian government owes some $40 billion in bonds denominated in dollars and euros, half of which is held by foreign investors.
Russia defends that the sanctions that exclude the country from the international financial system prevent it from paying in a currency other than the ruble, which it considers an acceptable means of payment.
IT DOES NOT YET INVOLVE A SYSTEMIC RISK
Analysts say that a breach by Russia of its debt commitments does not yet represent a systemic risk, due to the limited exposure to the country’s assets, given that many international investors left the country after the annexation of Crimea, in 2014, although it will be necessary to analyze in detail who are the holders of the Russian debt.
The non-payment could precipitate chain bankruptcies in those investors with strong positions in Russian assets and in ETF debt (funds that trade in real time), some of which are invested in the stock market and debt of that country, Juan told Efe Ignacio Crespo, market analyst.
Crespo also says that the “cross default” clause, which is usually included in all debt issuances, implies that at the moment in which a coupon is not paid, the entire issuance of that debt automatically expires, so that the holders of these Russian bonds will have to provision not only what was due this Wednesday but also the entire investment.