Russia dodged default: JP Morgan confirmed that 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 then made a subsequent loan to paying agent Citi, a source familiar with the situation told international agencies on Thursday. The money turnover had been questioned by the economic sanctions imposed by the US and other countries on Russia, following the invasion of Ukraine. The US authorities decided not to block the payment and Russia thus avoided its first foreign debt default in more than 100 years.

The payment received was a payment in US dollars, as established by the conditions for issuing the bonds. After being credited to the paying agent, the disbursement would be checked and distributed to several bondholders, the source told Reuters.

Russia said on Thursday that it had made debt payments due this week. On Wednesday, Russia was due 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 that, under the circumstances, it should also 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, all of which complicated payments.

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

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

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

If JP Morgan had not been able to proceed with the disbursement, Russia would have fallen into a delay in payments that opened a 30-day grace period after which, if they were not successful, default would be triggered.

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