Russia Defaults on Foreign Debt for First Time Since 1918

[LetMyPeopleVote]

Last edited Mon Jun 27, 2022, 12:09 AM - Edit history (1)

Sanctions work

Link to tweet

https://www.bloomberg.com/news/articles/2022-06-26/russia-defaults-on-foreign-debt-for-first-time-since-1918?utm_source=twitter&utm_content=business&utm_campaign=socialflow-organic&utm_medium=social&cmpid=socialflow-twitter-business

Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors.

For months, the country found paths around the penalties imposed after the Kremlin’s invasion of Ukraine. But at the end of the day on Sunday, the grace period on about $100 million of snared interest payments due May 27 expired, a deadline considered an event of default if missed.

It’s a grim marker in the country’s rapid transformation into an economic, financial and political outcast. The nation’s eurobonds have traded at distressed levels since the start of March, the central bank’s foreign reserves remain frozen, and the biggest banks are severed from the global financial system.

But given the damage already done to the economy and markets, the default is also mostly symbolic for now, and matters little to Russians dealing with double-digit inflation and the worst economic contraction in years.

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[PortTack]

1. Awh..calling morbidly obese generals to fight, defaulting on debt. How's that war in UKR working

For ya putin?

[captain queeg]

2. I read somewhere that Russia couldn't use gold due to the sanctions

I assume it was being used to get around international banks. If China doesn’t rescue them
It’s going to get pretty rough there.

[Xolodno]

3. Don't jump for joy just yet.

This is actually just a technicality. Yes Euro's and Dollars on the loans aren't being repaid due to sanctions. But there are plenty of assets and the Ruble value is actually worth more today than it was before the war. Moscow simply doesn't have enough of the currency to repay in the contracted loans. Trading Rubles to Dollars or Euros is a bit hard.

So investors will probably take the payment in Ruble but have to convert it to one or several foreign currencies, such as the Yuan, Rupee, Real, Peso, etc. then convert it back to Dollar or Euro. So there is a pain in the butt transaction cost, but its not like they aren't getting paid.

Add to that, Russia is one of the nations with the least amount foreign debt.

From the article:

They don’t need to act immediately, and may choose to monitor the progress of the war in the hope that sanctions are eventually softened. Time may be on their side: the claims only become void three years on from the payment date, according to the bond documents.

“Most bondholders will keep the wait-and-see approach,” Takahide Kiuchi, an economist at Nomura Research Institute in Tokyo.

Russia debt:

https://data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS?locations=RU

Another article:

https://abcnews.go.com/Business/wireStory/explainer-impact-russian-debt-default-85742467

About $40 billion in foreign bonds, about half of that to foreigners. Before the start of the war, Russia had around $640 billion in foreign currency and gold reserves, much of which was held overseas and is now frozen.

So if the bond holders declare (unlikely) default and sue, they will still get their money. But for now, they will probably just take their payment in another form.

[rockfordfile]

6. It's going to take time. Even if it takes years.

[SheltieLover]

4. ...

[usonian]

5. Russia's greatest asset?

[LetMyPeopleVote]

7. The sanctions imposed by President Biden and our allies, since the invasion of Ukraine in February,

Link to tweet