Russia makes $650m bond payment in rubles after US Treasury blocked dollar transfers
Russia on Wednesday said it had transferred $650 million worth of bond payments in rubles, raising fresh questions about whether the country is heading for an official default.
The move came after the US on Monday banned Russia from making dollar debt payments from accounts at American financial institutions.
Russia’s Finance Ministry on Wednesday confirmed foreign banks had refused to process the $649.2 million payment in dollars, which were due Monday.
It said it had instead sent the money to the country’s National Settlement Depository in rubles. The Ministry said it believes its obligations “have been fulfilled in full.”
However, ratings agencies have said they would consider Russia to have technically defaulted if it resorted to paying dollar-denominated debts in rubles.
Credit ratings agency Fitch said in March that a “forced redenomination of payment obligations” would indicate “that a default or default-like process has begun.” Fitch has since withdrawn all Russian ratings.
Although some of Russia’s foreign currency bonds specify that investors can be paid back in rubles in certain circumstances, the 2022 and 2042 bonds are not amongst them, according to JPMorgan.
Analysts are highly doubtful about whether foreign holders of Russian dollar-denominated bonds would accept rubles, given that they signed up to be paid in dollars and global sanctions.
The US Treasury’s Monday-night move was aimed at ramping up the economic pressure on Russia. It came as the US and Europe weighed up applying more sanctions to the country after reports emerged of possible war crimes in Ukraine.
Bondholders can still receive dollar payments if Russia can find a way to send them without using immobilized funds in US accounts, a person familiar with the Treasury’s thinking told Insider.
But the Russian Finance Ministry’s announcement suggested the country was not willing to find new avenues through which to send dollars, and instead was resorting to paying in its domestic currency.
