Russia says it transferred bond payment to avoid default

By The Associated Press | March 17, 2022 | Last updated on March 17, 2022
2 min read
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Russia’s Finance Ministry said it transferred a $117-million bond interest payment in an attempt to avoid a default on government debt but left it open if the money actually reached foreign investors by the deadline.

A ministry statement carried on Russian state media Thursday said the money had been transferred to an account at Citibank in London and that the ministry would make a statement later on the results of the transfer. Citibank had no comment.

The payment, which was due Wednesday, would be the first on foreign currency debt since Russia invaded Ukraine on Feb. 24.

Russia is facing increased financial isolation after Western sanctions have frozen much of the government’s hard currency reserves held outside the country and barred transactions with some Russian banks.

The head of the International Monetary Fund has said a state default is no longer “an improbable event,” and rating agencies have slashed Russia’s credit rating to below investment grade, or “junk.”

Finance Minister Anton Siluanov has said that if sanctions result in banks being unable to carry out interest payments in dollars, Russia would pay in rubles, which rating agency Fitch has said would constitute a default.

The U.S. Treasury website indicates that sanctions permit payments on Russian bonds through at least May 25.

Russia would have a 30-day grace period — until April 15 — if holders of the dollar bonds do not get their money.

But Russia could face a default even before then. A March 2 payment on ruble-denominated bonds held by foreign investors was made into a state depositary fund but not sent on to investors because of Russian central bank restrictions.

Rating agency Fitch says that would constitute a default after 30 days, or the beginning of April. On top of that, further bond payments are coming due in the weeks and months ahead.

A complicating factor in Russia’s trade and finance transactions is that some companies are leery of any dealings with Moscow, even permitted ones, because of concerns about the complexity of complying with sanctions and unwillingness to be associated with the war.

Russia has about $40 billion in foreign currency debt, about half of that owed to foreigners.

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