A potential Russian default resurfaced on Wednesday after Moscow failed to meet interest on its debt, as economic pressure mounts on Russia in the fourth month of war in Ukraine.
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The news that Russia is officially unable to repay its creditors appears to be inexorably closer in the eyes of most analysts, with Moscow finding it increasingly difficult to service its debts as Western sanctions tighten.
Since the three major international financial rating agencies no longer rate Russia, in application of Western sanctions, they refrain from being able to declare the country in default of payment or not, as is their usual role. It is therefore up to an organization bringing together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia is missing payments to its creditors.
On Wednesday, for the first time, this committee of creditors affirmed that the country had not honored the payment of interest on its debt to the tune of 1.9 million dollars, an amount admittedly small in view of the financial strength of the country. a state like Russia.
Holders of Russian bonds have reported not having received late payment interest for the repayment of a maturity on these bonds, according to a decision published on the website of this commission.
The commission can decide whether or not to activate insurance against default, called Credit Default Swap (CDS), an activation that can formalize a default. But it gave no indication on Wednesday on this subject, and must meet again on June 6 to discuss the case of Russia.
Concretely, Russia “paid the amounts it had to pay on the agreed due date, but intentionally or unintentionally forgot to add late payment interest”, explained to AFP Eric Dor, director of economic studies of the IESEG School of Management.
Probable fault
This unpaid interest relates to a bond repayment that dates back to April 4. Moscow had waited for the outcome of a “grace period”, a period of one month traditionally granted to a creditor to settle a debt, to pay the principal of his debt, and part of the interests.
Although it seems inevitable in the eyes of most experts, the announcement of a default by Russia on its external debt is still pending. This would be a first since the Bolshevik leader Lenin refused to recognize the debt inherited from the tsarist regime overthrown during the 1917 revolution.
Paying the debt is made all the more difficult as the sanctions imposed by the West since the start of the Russian invasion of Ukraine are affecting Moscow’s ability to borrow and repay what it owes.
The United States first made it impossible for Russia to pay its debt with dollars held in American banks. Then, last week, Washington completely banned Moscow from paying its debts in dollars – while Russia still has 12 payment deadlines to meet by the end of the year.
