Russia skirts nearer default after dollar payment blocked

Russia skirts nearer default after dollar payment blocked

Bloomberg/London

Russia has slipped closer to a technical default after foreign banks declined to process about $650mn of dollar payments on its bonds, forcing it to offer roubles instead.

While the finance ministry said that it “considers it fulfilled its obligations in full,” neither of the securities involved allowed payment in roubles, according to bond documents. Both notes have a 30-day grace period, data compiled by Bloomberg show.

The US and the European Union imposed tough financial sanctions on Russia after President Vladimir Putin invaded Ukraine late February, hampering its ability to transfer payments to bondholders. Russia has so far sidestepped its first external default in a century, but a US Treasury move this week to halt dollar debt payments from the country’s accounts at US banks has reignited investor concerns.

The cost of insuring Russia’s government debt now signals a record 99% chance of default within a year.

“The default issue is tricky,” said Abdul Kadir Hussain, head of fixed-income asset management at Dubai-based Arqaam Capital. “Russia can claim, ‘We are willing to pay, we have the money to pay, but banks are not letting us pay.’ I’m not sure how the courts would handle that.”

According to the finance ministry, foreign