Filenews 8 April 2022
Russia's creditors are facing an unpleasant prospect after the U.S. Treasury Department's decision on Monday to block the Kremlin from using its reserves in dollars: to pay them in roubles.
The Russian currency "sank" by 40% after Putin's military forces invaded Ukraine, but has since recovered to a significant extent. A default of €636 million in the payment of bonds. Moscow's imposition of additional sanctions for the atrocities allegedly committed by Russian soldiers in cities near Kiev could lead the rouble to a new slump.
"If creditors can't get their dollars back, either because they are blocked or because Russia doesn't pay them, and Moscow offers them roubles that they can access, then the smart move will be to get the roubles," said Jay Newman, a former portfolio manager at Elliott Management, who spearheaded the hedge fund's 15-year battle with the Argentine government over bond payments. "At least the roubles have some value," he added.
The U.S. Treasury Department "froze" Russian central bank assets that were in the U.S. in February after the invasion of Ukraine, but made an exception for bond payments that matured on May 25. However, the ongoing Russian invasion and horrific images of bodies of civilians on the streets of the city of Bucha forced the US to speed up the implementation of the "blockade" in Russia.
Until then, JPMorgan Chase and BNY Mellon, two banks based in New York, had acted as intermediaries for Russian payments to creditors. The Putin government continued to pay on time throughout March, the most recent being the payment of €447 million. dollars for a coupon that expired the previous week. Both JPMorgan and BNY Mellon declined to comment.
"If an entity that has been sanctioned wants to use its few available resources to pay off U.S. creditors, why should we object?" asked Robert Kahn, director at Eurasia Group. "On the other hand, why make life easier for them, especially after the horrific images we saw in Ukraine in recent days. The interest of creditors is not a top priority in these circumstances."
Moscow denied on Wednesday that it is close to defaulting even after the 30-day grace period it was given. Kremlin spokesman Dmitry Peskov said Russia has "all the necessary resources to service its debt" and insisted that payments could be made in rubles if needed. A U.S. Treasury spokesman said the move would exhaust the resources Putin uses to conduct his military operations in Ukraine. "Russia has to choose between draining its remaining precious reserves in dollars or future revenues and bankruptcy," the Finance Ministry spokesman stressed.
If Russia defaults on its payments, this will not be the first time - a Forbes report said in 1987 that a 96-year-old woman was still waiting to be paid for the "tsarist" bonds her husband had bought in 1919, after the Bolsheviks refused to recognize Russia's debt at the time.
Russian Finance Minister Anton Siluanov told state television in March that about $300 billion was spent on state television. dollars out of the 640 billion. dollars - which the country has in gold or foreign exchange reserves - have been frozen because of the sanctions. If Moscow still has access to around EUR 340 billion, it is not enough. dollars, then it will be able to cover the EUR 40 billion that has been set aside for this purpose. dollars that he has to pay to bondholders. However, Kahn stressed that the conditions are not so simple and estimated that Moscow's defaults on payments will begin in the coming weeks.
"The Kremlin may have dollars in a Chinese bank or gold in Moscow that are not reserved, but it is difficult to use them," Kahn said. "My feeling is that - in practice - the available reserves are much less than what the Russian minister estimated."
Russia will continue to use the proceeds from the sales of goods, such as wheat, palladium and oil, to fulfil its obligations. The U.S. has "blocked" imports of Russian oil, but many countries have not followed its example.
Meanwhile, trading Russian dollar-denominated corporate bonds has skyrocketed, with investors chasing opportunities despite the risk. The average daily value of transactions on March 24 was twice as high as a year ago and the largest in two years, according to Bloomberg.
Source: Forbes
