Credit-worthiness rating agency S&P Global says Russia has defaulted on its foreign debt after offering bondholders payments in rubles, not U.S. dollars.
On April 4, Russia tried to pay in rubles for two dollar-denominated bonds, a move that S&P describes as a “selective default” since investors are unlikely to convert the rubles into “dollars equivalent to the originally due amounts.”
According to the ratings agency, a “selective default” takes place when an entity has defaulted on a specific obligation, not its entire debt.
Moscow now has a 30-day grace period to make the payments of capital and interest. However, S&P doesn’t expect that Russia will be able to convert any ruble payments into dollars because of Western sanctions and the inability of Moscow to access about $315 billion of its foreign currency reserves.
Russia is now planning legal action.
“We will sue because we undertook all necessary action so that investors would receive their payments,” Finance Minister Anton Siluanov said on April 11, adding that “we will show the court proof of our payments, to confirm our efforts to pay in rubles, just as we did in foreign currency. It won’t be a simple process.”
Siluanov, however, did not specify whom Russia is planning to sue and how.
The New York Times reported that the credit-worthiness agency didn’t expect investors to be able to convert the ruble payments on the dollar-denominated debt into hard currency.
Meanwhile, Putin’s spokesperson Dmitry Peskov said in a news conference last week that any default would be “artificial” as Russia has the necessary dollars but is unable to access them.
“There are no grounds for a real default,” Peskov said. “Not even close.”
The sanctions restrict Russia’s access to about half of its hard currency reserves stem from Kremlin despot Vladimir Putin ordering a renewed invasion of Ukraine on Feb. 24 in what is becoming the worst ground war on the European continent since World War II.
“Sanctions on Russia are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical abilities to honor the terms and conditions of its obligations to foreign debt holders,” the ratings agency said as cited by the NY Times.
