Russia says it ordered payment as it seeks to avoid historic default

Russian President Vladimir Putin speaks with Finance Minister Anton Siluanov during the EAEU summit meeting December 20, 2019 in Saint Petersburg, Russia.

Mikhail Svetlov | Getty Images News | Getty Images

Russia’s Finance Ministry said on Thursday it had made crucial interest payments on two dollar-denominated Eurobonds, saying the order had been placed with payment agent Citibank in London.

The department said it would later comment separately on whether the $117 million payment was credited.

Citibank declined to comment when contacted by CNBC Thursday morning.

Delivery of payment on the two eurobond coupons is a key test for Russia. The Kremlin is eyeing down the prospect of its first foreign currency default in more than a century after the United States and its international allies imposed a barrage of economic sanctions following its invasion of Ukraine.

The sanctions tied up much of Russia’s gold and currency reserves and sought to cut Moscow off from the global financial system.

Russia had until the end of work on Wednesday to fulfill its obligations and pay $117 million in interest on two sovereign Eurobonds.

Finance Minister Anton Siluanov said Wednesday that Russia had tried to make the payment, but it was up to the United States to decide whether it was accepted.

It was not immediately clear whether the payment was made in dollars amid speculation that Russia may attempt to pay in rubles.

Credit rating agency Fitch warned earlier this week that paying bondholders in a currency other than the dollar would constitute default.

“Russia blinked”

“Russia blinked,” said Timothy Ash, senior sovereign emerging markets strategist at BlueBay Asset Management, via email.

“He used the resources of his limited war chest beyond the reach of Western sanctions to make the payment. Let’s see if he ends up with any bondholders.”

Ash suggested that Russia realized “the price of default was much higher.”

The prospect of non-payment would trigger a 30-day grace period before Russia falls into technical default, but the Kremlin will likely argue that Western sanctions prevented it from making the payment.

If confirmed after the grace period, the non-payment would mark Russia’s first sovereign default since 1998, when it defaulted on its domestic debt, and the first sovereign default on its foreign currency debt since the Bolshevik Revolution of 1918.

Economists were unsure how Russia’s finance ministry would approach the payment in light of sanctions imposed on Russia’s Central Bank that have rendered much of its foreign exchange reserves inaccessible, sparking a wave of downgrades. credit by major global rating agencies.

— CNBC’s Elliot Smith contributed to this report.


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