(Bloomberg) — Russia will suspend bond sales for the rest of the year and take legal action if sanctions force the country to default on its debt, according to the Russian finance minister.
Anton Siluanov's statements in the Russian newspaper Izvestia come days after the government breached the terms of two bonds by paying investors in rubles instead of dollars, and S&P Global Ratings lowered its credit rating to “selective default”.
The threat of default has been looming over Russia for weeks, after sanctions were imposed on it for its invasion of Ukraine. The Moscow Government says it has the funds to meet its debt obligations and has reiterated that its difficulties in dealing with bond payments are due to restrictions. Siluanov has said that the United States and other countries are trying to force Russia to default.
“Of course, we will sue, because we have taken all necessary measures to ensure that investors receive their payments,” he said, according to Izvestia. “It won't be an easy process. We will have to demonstrate our case very actively, despite all the difficulties.”
Due to financial and economic constraints, the cost of securing Russian government debt increased by one point last week to imply a 99% probability of default within a year.
Siluanov also said that Russia suspended bond auctions due to prohibitive borrowing costs.
“We do not plan to go to the local market or to foreign markets this year,” he said. “It doesn't make sense because the borrowing costs would be cosmic.”
Todd Schubert, head of fixed income at Bank of Singapore, said Russia's fiscal position at the start of the Ukrainian conflict was favourable thanks to low leverage and sizeable foreign exchange reserves.
In addition, it has massive inflows of funds thanks to its oil and gas exports, since the European Union alone pays about 1 billion euros a day for energy.
“This gives the government flexibility to abstain from public debt markets for the foreseeable future,” Schubert said.
S&P downgraded its Russian rating on Saturday in a final assessment before withdrawing coverage. Rating agencies are leaving Russia due to a ban by the European Union. Moody's Investors Service and Fitch Ratings also withdrew before the April 15 deadline.
Original Note:
Russia to Halt Bond Sales, Threatens Legal Action Over Default
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