Russia has three weeks to pay its debts in dollars and avoid default

Moody's investment service confirmed on Thursday that Russia “could be considered default” if it does not pay two dollar maturities before the end of the grace period on May 4.

For several weeks Russia managed to avoid the danger of default despite sanctions imposed on it for invading Ukraine because the US Treasury allowed the use of foreign currency held by Moscow abroad to settle foreign debts.

But the United States has tightened sanctions and is no longer accepting Moscow dollars in US banks.

The Russian finance ministry announced in early April that it had settled a debt of almost 650 million dollars in rubles.

Moody's said in a statement that the April 4 payment of two bonds maturing in 2022 and 2042, in rubles instead of US dollars, “changes the terms of payment of the original contracts and, therefore, can be considered a default” if Moscow does not pay this debt before May 4.

“Bond contracts do not provide for any reimbursement in a currency other than the dollar,” Moody's adds.

“Although Eurobonds issued after 2018 allow, under certain conditions, refunds in rubles, those issued before 2018 (including bonds from 2022 and 2042) do not contain this alternative currency clause or only allow reimbursement in other hard currencies (dollar, euro, pound sterling or Swiss franc),” the agency details.

On April 9, the financial rating agency S&P Global Ratings already announced that it had downgraded Russia's rating for its foreign currency payments to the level of “selective default”, precisely because Moscow had settled the debt mentioned by Moody's in rubles.

A country is considered to default when it cannot fulfill its financial commitments to its creditors, which can be States, financial institutions (International Monetary Fund, World Bank, etc.) or investors in the financial markets.

The default can still be declared by a private creditor who publicly reveals that Russia has stopped paying you or by the American agency ISDA, which manages credit default swaps (CDS), a kind of insurance against default.

It is partial or selective when the State reimburses part of its obligations.

Russia will initiate legal proceedings if it is declared in default from the West, said Finance Minister Anton Siluanov in an interview published Monday on the specter of a massive default of private companies in the country.

“We will go to justice, because we have taken all necessary measures to ensure that investors receive their payments,” the minister told Izvestia newspaper.

“We will present our invoices to the court confirming our efforts to pay both in foreign currency and in rubles. It won't be an easy process. We will have to test our position very actively, despite all the difficulties,” he added without specifying which legal body they would resort to.

(With information from AFP)

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