Russia dodged default: JP Morgan confirmed it was able to process payments on two bonds that were due yesterday

Interest payments on two Russian sovereign bonds due this week were received by correspondent bank JP Morgan, processed and the bank later made a loan to paying agent Citi, a source familiar with the situation told international agencies on Thursday. The turnover of money had been called into question by the economic sanctions imposed by the United States and other countries on Russia, as a result of the invasion of Ukraine. The US authorities decided not to block the payment and Russia thus avoided its first default on foreign debt in more than 100 years.

The payment received was a payment in US dollars, as established by the terms of issuance of the bonds. After being credited to the paying agent, the disbursement would be verified and distributed to several bondholders, the source told Reuters.

Russia said on Thursday that it had paid off its debt this week. On Wednesday, Russia had to pay $117 million in coupons for two dollar-denominated sovereign bonds. Payments were widely seen as the first test of whether Moscow would meet its obligations after Western sanctions hampered its financial transactions.

The source said that JP Morgan's obligation as a foreign correspondent bank was to process payments, but in these circumstances it also had to consult with the authorities before doing so.

The sanctions imposed by Moscow's invasion of Ukraine isolated Russia from the global financial system and blocked most of its gold and foreign exchange reserves, while Moscow in turn retaliated, which complicated payments.

The bank consulted with the authorities before processing the payment, the source said. Failure to process the payment would have harmed bondholders, the source said.

The Office for Foreign Assets Control (OFAC) is the US Treasury Department's agency responsible for imposing sanctions. It has established exceptions to sanctions, for example, for the payment of interest on debt.

However, there were delays in crediting funds to bondholders' accounts because the US financial institutions involved wanted to move safely and verify that the movement of funds did not violate sanctions.

If JP Morgan had not been able to disburse, Russia would have faced a late payment that would have opened a 30-day grace period after which, in case of failure, a default would be triggered.

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