Russia says it made sovereign bond payments in US dollars

A development that could sidestep a sovereign default that had looked all-but inevitable. 
Image: Andrey Rudakov/Bloomberg

Russia said dollar payments on two foreign bonds are progressing after sanctions held them up for weeks, a development that could sidestep a sovereign default that had looked all-but inevitable.

The country previously made the payment in rubles after dollar funds were blocked in early April by its correspondent bank. That breached the terms on the debt and set the clock ticking on a 30-day grace period, which ends May 4, after which a default can be declared.

But on Friday, Russia’s Finance Ministry said in a statement it sent dollars to the paying agent, Citibank N.A., London branch. The amounts were $564.8 million on a 2022 Eurobond and $84.4 million on a 2042 bond. The statement didn’t provide additional details of the process.

If that money gets to investors before the end of the grace period, it could see the nation dodge what would have been its first default on foreign-currency debt since the Bolsheviks repudiated Czarist Russia’s debts more than a century ago.

It’s another twist in the economic and financial battle that’s been playing out since Russia invaded Ukraine. Western sanctions have frozen foreign reserves and cut the country off from the global financial system, while the assets of politicians and businesses linked to Vladimir Putin have been seized by authorities.

Russia has responded with threats of legal action, saying the US and others are trying to force it into a default. It’s also weaponized its energy resources, and this week cut off gas supplies to Bulgaria and Poland.

© 2022 Bloomberg

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There is a tipping point where a strategic default is better than a bad debt servicing.

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