Russia has defaulted on its external debts for the first time in a century, in a humiliating blow to Vladimir Putin that further locks his country out of the Western financial system.

After narrowly avoiding non-payment on several occasions since launching the invasion of Ukraine in late February, Moscow has failed to pay $100 million in coupons on bonds due last month, for which a deadline 30-day grace period ended on Sunday.

Payment had been made virtually impossible after the White House decided to block channels to Western creditors, meaning Russia could not settle its debts despite the means and the will to do so.

The default – the first time Russia has failed to make payments to international bondholders since the 1918 Bolshevik Revolution – is mostly a symbolic event for now: Russia is already a pariah within the financial system West and is unlikely to exploit international markets to raise money in the near future.

But it will further tie Mr Putin’s hands as the country suffers its biggest economic shock in years and could deprive Russian companies of future financing options if the contagion spreads to corporate bonds.

The country had already defaulted on its domestic debt in 1998 as it underwent a post-Soviet economic transformation.

Russia claimed the default was an artificially engineered sham by the United States. He said last week he would repay his debt in roubles, a move creditors have already ruled out. Anton Siluanov, the finance minister, called the situation a “farce”.

He said, “Anyone can say whatever they want.

“But anyone who understands what’s going on knows that’s by no means a fault.”

Normally a default would be declared by one of the Wall Street rating agencies, probably S&P, Fitch or Moody’s. But European Union sanctions forced the companies to withdraw their coverage of Russia.

However, bonds whose payment has been missed allow their holders to declare default if 25% agree that a non-payment has occurred. Documents attached to the debt securities give three years for a claim to occur – meaning some investors may wait to see if Russia is rehabilitated into the global financial system during that time.

If they do act, doing so through the court system could prove difficult as Moscow has said it will reject the jurisdiction of any foreign court.

Foreigners held about $20 billion worth of Russian Eurobonds in early April. Several payment deadlines have now passed, including Thursday and Friday of last week, so it is possible that Russia will soon be deemed to have defaulted on several debts.

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Source: www.telegraph.co.uk
This notice was published: 2022-06-27 06:34:25