With the US Department no longer accepting dollars held by Moscow in US banks, Russia is once again at risk of defaulting.
The “investors” arm of Moody’s confirmed on Thursday that Russia “could be considered in default of payment » if it doesn’t pay two installments in dollars by the end of the grace period, the next May 4th.
Russia, despite the sanctions imposed on Russia, was able to avert the threat of default for several weeks because the US Treasury Department allowed the use of foreign currencies held abroad by Moscow to pay off foreign debt. But the US Department has tightened sanctions and will no longer accept dollars held by Moscow in US banks. The Russian Treasury announced in early April that it had settled a debt of nearly $650 million in rubles.
Moody’s said in a statement that the payment of two bonds maturing in 2022 and 2042 on April 4 will be in rubles instead of US dollars “changes the payment terms compared to the original contracts and can therefore be considered as default” if Moscow does not pay off this debt by May 4, ie by the end of the grace period. “The bond agreements do not provide for repayment in any currency other than the dollar,” continues Moody’s. “Although Eurobonds issued after 2018 allow redemptions in rubles under certain conditions, those issued before 2018 (including the 2022 and 2042 bonds) either do not include this alternative currency clause or only allow redemption in other hard currencies (dollars, euros, sterling or Swiss francs)”describes the agency.
Russia’s rating already downgraded
Already on April 9, the financial rating agency S&P Global Ratings announced that it had lowered Russia’s rating for its payments in foreign currencies to the level of “Selective Default”, precisely because Moscow had paid off the debt cited by Moody’s in rubles.
A country is considered to be in default when it is unable to meet its financial obligations to its creditors, which may be sovereigns, financial institutions (International Monetary Fund, World Bank, etc.) or investors in the financial markets. The non-compliance is called partial when the state fails to pay part of its obligations.