WAR UPDATE: Russia Defaults on Its Debt

For the very first occasion in a generation, Russia failed to make payments on its foreign-currency government debt.

This Will Change the War

Russia tried to circumvent the sanctions after the Kremlin attacked Ukraine for months.

Though on Sunday, the time limit for nearly $100 million in late interest payments to be made on May 27 came to an end. Missing this date would be viewed as a default event.

It’s a tragic milestone in the nation’s quick decline into a financial, social, and political disgrace.

Since the beginning of March, the price of the country’s Eurobonds has fallen to distressed levels and the foreign reserves of the central bank are still frozen. The largest banks are no longer connected to the international financial system.

The default, however, is also mostly ceremonial, for the time being.

It doesn’t mean much to Russians who are suffering from double-digit hyperinflation and the worst economic recession in years, given the harm is already done to the economy in recent years.

Russia has resisted being designated as defaulting, claiming it has the cash to pay all of its loans and has been coerced into doing so.

It started last week that Russia would move to pay its $40 billion in the outstanding national debt in rubles, trying to find a way out while condemning a “force-majeure” situation it claimed was fabricated by the West.

Hassan Malik, the senior national economist at Loomis Sayles & Company LP, stated forcing a nation into default when it otherwise has the resources is a very, very unusual occurrence. It’s likely to be one of history’s significant watershed defaults.

Rating agencies would typically make a public declaration, but because of European sanctions, they have eliminated rating Russian companies.

Owners of 25% of the long-term bonds must concur that an “Event of Default” happened in order for holders of the notes whose time limit ended on Sunday to call one themselves.

What’s Next?

The focus now is on what shareholders should do since the last deadline passed. They are not required to take immediate action at this time.

According to Takahide Kiuchi, an analyst at the Nomura Research Center in Tokyo, “the majority of bondholders will maintain the wait-and-see stance.”

President Boris Yeltsin’s administration failed on $40 billion of its domestic debt during the 1998 Russian financial crisis and currency devaluation.

The last time Russia defaulted on its obligations to its international debt was more than one century earlier.

As per Loomis Sayles’ Malik, who is the writer of “Bankers and Bolsheviks: World Finance and the Russian Revolution,” it was close to a trillion dollars in today’s currency by some estimations.

By contrast, as of the beginning of April, foreigners owned Russian Eurobonds worth close to $20 billion.