S&P Global has placed Russia under a “selective default” rating after the Russian government said last week that it had paid off nearly $650 million in dollar-denominated debt in rubles.
The ratings agency said late Friday that it did not expect investors to be able to convert ruble payments into US dollars that were equal to the principal amount, giving Russia its first default on foreign currency sovereign debt in more than a century. pushed aside.
The bonds have a 30-day grace period, giving the Russian government time to repay in dollars or find some other way to avoid default. S&P Global said it did not expect the government to convert the payments within the grace period.
“Sanctions on Russia are likely to increase further in the coming weeks, which may hinder Russia’s willingness and technical capabilities to honor the terms and conditions of its obligations to foreign debt holders,” the rating agency said. “
On 4 April, a dollar-denominated Russian government bond matured and a second coupon payment was due. On the same day, the US Treasury Department tightened its sanctions on Russian transactions to force Russia to choose between liquidating its dollar reserves or using the new revenue to avoid defaulting on its debt. Can go The department barred Russia from using dollars held in US banks for its bond payments, and the transaction was not completed by JPMorgan. Subsequently, the Russian Ministry of Finance said that it paid off the debt in rubles.
While the finance ministry said it considers its debt obligations to be “fully” met, rating agencies have said payments in a different currency than the one that was agreed would result in default. None of the bonds with payments due on April 4 had a provision for payment in a currency other than dollars.
After the invasion of Ukraine in late February, sanctions were imposed on Russia, including freezing of central bank reserves held abroad. Rating agencies then cut Russian debt to junk status and investors bet on default. But for weeks Russia kept paying the debt. US officials allowed the transaction and said US bondholders would be allowed to receive loan payments until May 25, despite the sanctions.
If Russia does not repay the debt in dollars, it is not clear how the problem will be resolved. Until the 30-day grace period on bond payments due on April 4 expires, credit rating agencies will be barred by EU sanctions from assigning any ratings to Russian entities and will not be able to judge whether a default has occurred. Companies are withdrawing all their ratings ahead of the EU’s April 15 deadline.
Last month, Russia’s finance minister, Anton Siluanov, accused countries that have tried to make Russia’s international currency reserves an “artificial default”. Last week, the finance ministry said that ruble payments could be converted to dollars if reserves remained unchanged.
S&P Global also said on Friday that it kept its “CC” junk debt rating in the ruble (known as local currency debt) for Russia’s sovereign debt because it was not sure that non-resident bondholders would be able to access their coupon payments. were or not.
According to documents on the Russian Ministry of Finance website, coupon payments were being made for local currency bonds. But in March, Russia stopped interest payments to non-residents.
“Definite information on payment processing is not currently available to us,” the agency said.