Russia could be in default, says Moody’s


Russia may default after trying to service its dollar-denominated debt in rubles because of Western sanctions over the war in Ukraine, said Moody’s, Moscow’s first major default on foreign debt since the years after the 1917 Bolshevik revolution.

Russia made a payment due April 4 on two government bonds — maturing in 2022 and 2042 — in rubles, not dollars, which it was required to pay under the terms of the securities.

Russia “can therefore be considered a default according to Moody’s definition if it does not pay by April 4.

“The bond agreements do not provide for repayment in any currency other than dollars.”

Moody’s said some Russian Eurobonds issued after 2018 allow payments in rubles under certain conditions, but those issued before 2018 – such as those due in 2022 and 2042 – do not.

“Moody’s believes that the investors did not receive the contractual foreign currency promise on the payment due date,” Moody’s said.

Russia has repeatedly said it wants to service its debt but countered that the West prevented it from paying by imposing crippling sanctions after President Vladimir Putin ordered a special military operation in Ukraine on February 24.

Russia defaulted on $40 billion in domestic debt in 1998 and devalued the ruble under President Boris Yeltsin because it was effectively bankrupt after the Asian debt crisis and falling oil prices shook confidence in its short-term ruble debt.

This time, Russia has the money but cannot pay for it because the reserves — the fourth largest in the world — that Putin built for such a crisis are being frozen by the United States, the European Union, Britain and Canada.

It could be Russia’s first major debt default in more than a century. Even when the Soviet Union collapsed, Russia assumed its foreign debt.

In 1918, Bolshevik revolutionaries under Vladimir Lenin rejected tsarist debt and shocked global debt markets because Russia had one of the largest external debts in the world at the time.

Since the bonds were worth nothing, some holders of tsarist banknotes used them as wallpaper. The Soviet Union under Joseph Stalin stopped servicing loans to the United States and Sweden after World War II. Russia could be in default, says Moody’s

Fry Electronics Team

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