This is how Russia has avoided defaulting on its debt.

Despite stringent economic sanctions, shrinking foreign reserves and nervous banks, Russia has kept up with government debt payments, shattering expectations of a few weeks ago, when agencies raters believed that a breach was imminent and the government said so could repay his international loans in rubles.

“People look at this and scratch their heads,” said Michael Bolliger, chief investment officer for emerging markets at UBS Global Wealth Management. He said they were asking, “How is this possible? And what is Russia willing to pay for?

Monday was expected to be a test for Russian debt, with more than $2 billion to be paid in US dollars. But last week Russia bought back about three quarters of the debt in exchange for rubles, a relatively unusual move that reduced its dollar obligations. That still left $552 million to pay. The Ministry of Finance did not say if the payment had been made.

Every payment Russia has owed on its dollar-denominated debt since it invaded Ukraine has been scrutinized. The first payments of $117 million in mid-March were slightly delayed after JPMorgan Chase in New York and Citibank in London sought approvals to handle the transactions. avoiding what would have been Russia’s first default on foreign currency debt in more than a century.

But there is still an intense focus on future payments. While Russia has shown a willingness to pay down its dollar debt, analysts have questioned whether sanctions imposed by the US and European governments will eventually get in the way of its ability to pay. The US government created an exception to its sanctions policy to allow debt repayment, but that expires on May 25. Two days later, about $100 million in interest payments are due.

Russia has also lost access to about half of its $600 billion in foreign exchange and gold reserves due to sanctions imposed on its central bank, but that has not yet impeded the country’s ability or willingness to send foreign currency abroad. . On the one hand, you are still receiving foreign exchange for natural gas exportsand Mr. Bollinger said that Russia’s ability to service its debt was less of an issue at the moment.

But analysts can only speculate why Russia is willing to pay amid suffocating sanctions What are they ready to get tighter.

“If they have aspirations at some future date to return to global capital markets, then it is better not to have defaulted,” said Kamakshya Trivedi, co-head of global currency, interest rates and emerging markets strategy at Goldman Sachs. A default would end a century-long payment history.

But Russian sanctions and capital controls are hampering other debt payments. In early March, Russia said coupon payments on ruble-denominated debt would not be paid to foreign investors, and while documents on the Finance Ministry’s website show that payments have been made, it is unclear if the payments have been made. foreign investors have access to money.

And then there are the companies that have not been able to pay their debts on time because their owners are under sanctions. severstalthe steel giant, ran out of time to resolve an issue raised by Citibank to pay a $12.6 million coupon on a dollar-denominated bond, for example.

And credit rating agencies in recent weeks have withdrawn their ratings for entities in Russia, in line with European Union sanctions. That will make it much more difficult for Russian companies to raise capital in the future, Trivedi said.

“Without having credit rating agencies fully involved, the market you could access would be much, much smaller,” he said.

Previous post Industry 4.0 market worth $165.5 billion by 2026
Next post Learn about your money in small, manageable steps | Smart Switch: Personal Finance
%d bloggers like this: