Bloomberg: Russia is just hours away from the first external bankruptcy in a century

After months of acrobatics on the brink of bankruptcy, Russia is just a few hours away from a dramatic moment in the economic dispute that the US and others have waged against the Kremlin over the Russian invasion of Ukraine.

A grace period of about $ 100 million from late bond payments – which have been blocked by extended sanctions – expires on Sunday night, according to Bloomberg. There will be no official statement and Russia is already disputing the designation, but if investors do not have their money by the deadline, there will be a “default” on Monday morning, according to bond documents.

This is largely a symbolic development at the moment, as Russia is already an economic, financial and political idiot in much of the world. This fact, however, highlights how the United States, Europe, and others have tried to make it almost impossible for Russia to conduct what would otherwise be normal economic transactions.

For Russia, it will mark its first external bankruptcy since the Bolsheviks ousted the Tsar’s debts in 1918. The country came very close to such a moment earlier this year, but managed to escape at the last minute by changing payment methods. This alternative then closed in May – just days before the $ 100 million payment – when the US closed a window of sanctions that allowed US investors to receive government bond payments.

Now the question is what will happen next, as the markets are faced with the unique scenario of a bankrupt borrower who has the will and resources to pay, but can not.

The big rating agencies would usually be the ones to issue a default statement, but sanctions prevent them. Bondholders could make their own statement, but may prefer to wait to watch the war in Ukraine and the level of sanctions as they try to calculate the chances of getting their money back, or at least some of it.

“A bankruptcy declaration is a symbolic event,” said Takahide Kiuchi, an economist at the Nomura Research Institute in Tokyo. “The Russian government has already lost the opportunity to issue debt in dollars. Right now, Russia can not borrow from most foreign countries.”

As sanctions against Russian authorities, banks and individuals have increasingly cut off payment routes, Russia has argued that it has met its obligations to creditors by transferring May payments to a local payer, even if investors do not have the means to do so. funds in their own accounts.

Earlier this week, he made other transfers in rubles, despite the fact that these bonds do not allow this payment option.

Finance Minister Anton Siluanov cited “reasons of force majeure” as an excuse to change the payment currency, calling the situation a “farce”. The force majeure legal argument has historically not included sanctions, according to lawyers who spoke to Bloomberg earlier this month.

“There is every reason to assume that by artificially preventing the Russian Federation from servicing its foreign debt, the goal is to enforce the term bankruptcy,” Siluanov said on Thursday. “Everyone can say what they want and can try to enforce such a condition. But anyone who understands the situation knows that this is by no means a bankruptcy.”