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Western Sanctions Force Russia to Officially Default On Foreign Debt

Western Sanctions Force Russia to Officially Default On Foreign Debt

Almost immediately after being severely downgraded by Standard and Poor’s, Russia has officially defaulted on its foreign debt because it offered bondholders payments in rubles, not dollars, S&P said Monday.

Russia can’t access the roughly $315 billion of its foreign currency reserves as a result of Western sanctions imposed following its invasion of Ukraine. Until last week, the United States allowed Russia to use some of its frozen assets to pay back certain investors in dollars. But the US Treasury has since blocked the country from accessing its reserves at American banks, part of its effort to ramp up pressure on Russian President Vladimir Putin and further diminish his war chest.

Russia attempted to pay in rubles for two dollar-denominated bonds that matured on April 4th, S&P said on Friday. The agency said this amounted to a “selective default” because investors are unlikely to be able to convert the rubles into “dollars equivalent to the original amounts due.” A selective default is declared when an entity has defaulted on a specific obligation but not its entire debt.


Moscow has a grace period of 30 days from April 4th to make the payments of capital and interest, but S&P said it doesn’t expect the conversion into dollars given Western sanctions that undermine its “willingness and technical abilities to honor the terms and conditions” of its obligations. But Russia is now planning legal action to fight the default. “We will sue, because we undertook all necessary action so that investors would receive their payments,” Finance Minister Anton Siluanov told pro-Kremlin Izvestia newspaper on Monday.

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The ruble was trading at 79 to the US dollar on Monday, according to data from Refinitiv. That’s about 5% weaker than on Saturday.

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