Russia is said to have an event of default on sovereign debt commitments, the Bloomberg news agency reported. According to the news agency, investors did not receive money due and the situation can be treated as a default. This is the first case since 1918 when Russia failed to honor its sovereign debt commitments, the news outlet said.
The Kremlin firmly rejected such default allegations. “These allegations of a default are absolutely unjustified, because back in May, the obligatory payment in the currency was fulfilled, and the fact that Euroclear withheld this money, or did not deliver it to the recipients is no longer our problem,” he told reporters.
Developments
The deadline for paying $100 mln in Russian Eurobond coupons expired at night on June 27, Bloomberg said. Reuters also reported that a development had occurred that could be viewed as a default. According to the news agency, some Taiwan-based holders of Russian bonds not assuming repayment in rubles did not receive payments after the grace period had lapsed.
The Russian Finance Ministry reported on May 20 that it had made the payment under Eurobonds maturing in 2026 in the amount of $71.25 mln and in 2036 in the amount of 26.5 mln. The US license authorizing the currency debt servicing expired on May 25. Nevertheless, bondholders did not receive the money by May 27, Bloomberg reported. The 30-day countdown for the default announcement started from then.
Russian Finance Ministry’s position
The Russian Finance Ministry denies any default. “In accordance with issuing documentation for mentioned issues, the event of default is the failure to pay on the part of the debtor, but the payment was made in advance – on May 20, 2022. In this case, the failure of investors to receive funds occurred through third party action and not as a result of the failure to pay, which is not expressly provided in issuing documentation and should be considered within the framework of the general norms of law governing conditions of the issue, with consideration of all the circumstances and good faith in the actions of the parties,” the Ministry stated.
Ruble payments
The West continues depriving Russia of the opportunity to normally service its external debt. The paying agent’s functions for sovereign Eurobonds maturing in 2023, 2028, 2042 and 2043 were transferred in early June to Russia’s National Settlement Depository. The European Union later included the Depository into the sixth package of anti-Russian sanctions.
On June 22, Russian President Vladimir Putin issued an executive order, whereby Moscow views its Eurobond payment obligation as honored “if they are made in rubles in the amount equivalent to the value of foreign currency commitments” on the day the funds are transferred to the National Settlement Depository. The first such payment was made on June 23 for Eurobonds maturing in 2027 and 2047.
No grounds to announce default
The transfer of payments to rubles is caused by the refusal of foreign counterparties to process payments in foreign currency but this does not translate to an international debt default announcement, Russian Finance Minister Anton Siluanov said.
Documents of all Russian issues contain the Currency Indemnity clause allowing lawful payments in rubles if sanctions prevent payment in the original currency, in case of court judgment, court order or any other decision.
Russia has all the opportunities to repay foreign debts using its financial resources, Governor of the Central Bank Elvira Nabiullina said earlier.
Further developments
The default procedure can be implemented in two ways, either a global rating agency can announce it, or a court may do so upon a motion filed by investors or courts, says Kyle Shostak, CEO of US-based Navigator Principal Investors.
If the West announces the default on Russian sovereign Eurobonds, Russia will go to court, Finance Minister Anton Siluanov said earlier in an interview with Izvestiya newspaper.
