Filenews 27 May 2022
Russia may avoid bankruptcy on Friday, but the "noose" of Western sanctions over its invasion of Ukraine is inexorably pushing the country towards bankruptcy.
A $71 million payment that had to be paid on Friday may have already been made before U.S. authorities this week removed an exemption that allowed Russia to pay its debts in dollars, using currency it held outside U.S. financial institutions.
But with other payments expiring, the world will likely soon see the first case of a country that inadvertently goes bankrupt because of international sanctions and not because it does not have the money to pay.
Until this week an exception to U.S. sanctions allowed Russia to repay bondholders in dollars, but the Biden administration allowed that exemption to end.
Russia reiterated on Wednesday that it is willing to repay all its debts in roubles, but the terms of some bonds stipulate payment in dollars or other currencies.
An interest payment of €71 million was made. according to Slim Souissi, a professor at the IAE Caen school of business, the terms of the bond "do not provide for payment in roubles, except in dollars, euros, pounds sterling and Swiss francs."
A payment in roubles would be considered a default, said an expert who works for the rating agency Fitch.
But the payment may have already been made before the exemption from U.S. sanctions expires.
The Russian Ministry of Finance said in a statement last week that it had already transferred the funds for distribution to bondholders.
"The obligation to pay for the bonds of the Russian Federation has been fully satisfied and in accordance with the documents issued by the Eurobond by the Russian Ministry of Finance," he said.
He added that a second payment of €26.5 million to be paid on Friday had also been made, although this payment could be made in roubles under the terms of the bond.
Three other interest payments, totalling just under 400 million dollars, are due at the end of June, according to data compiled by Bloomberg. Some of these bonds can only be paid in dollars.
In total, the Russian government must make 14 bond payments by the end of this year.
Russia has the money to pay and wants to pay, but it cannot because of international sanctions. According to experts, this is happening for the first time.
Argentina, in its bankruptcy in 2014, had the money but refused to pay the hedge funds that had refused to accept a deal, as this would undermine the entire renegotiation of its debt.
The Russian Ministry of Finance has threatened to go to court if the country is declared bankrupt, in order to prove that it sought to pay the creditors.
A default usually means that a country loses the ability to borrow on the international capital markets for several years until it regains investor confidence.
In this regard, the current international sanctions are preventing Russia from borrowing. Creditors' confidence in Russia's ability to repay is not currently an issue, but could be if sanctions push the country's economy into a severe recession.
