Russia defaults on foreign debt for the first time in over a century

Russia defaulted on its foreign sovereign bonds for the first time since 1918, after the Bolshevik Revolution, as sweeping sanctions effectively cut the country off from the global financial system and made its assets untouchable for many investors.

A US official said on Monday (27) that the default demonstrates how the measures are impacting Russia’s economy. The White House also released a document detailing possible actions by the G7 to support Ukraine and further curb Moscow’s oil revenues.

“This morning’s news about the discovery of Russia’s default, for the first time in over a century, sets out just how strong the actions the US, along with allies and partners have taken, as well as the impact on Russia’s economy.” , the US official added at a briefing at the G7 summit in Germany.

Hours earlier, some bondholders said they did not receive accrued interest on Monday after the grace period expired on Sunday.

Russia has struggled to keep payments on $40 billion of outstanding bonds since the February 24 invasion of Ukraine, as economic measures effectively cut the country off from the global financial system.

The Kremlin has rejected claims that it defaulted on its foreign debt. Spokesperson Dmitry Peskov said Russia made bond payments in May, but the fact that they were blocked by Euroclear because of Western sanctions “is not our problem.”

The Russian government has repeatedly said there is no reason for Russia to default but is unable to send money to bondholders because of the sanctions, accusing the West of trying to trick it into an artificial default.

Russia’s efforts to avoid what would be its first major default on cross-border bonds took a hit in late May, when the US Treasury Department’s Office of Foreign Assets Control (OFAC) all but barred Moscow from making cross-border payments.

“Since March, we thought the Russian default was inevitable, the question was when,” Dennis Hranitzky, head of sovereign bonds at law firm Quinn Emanuel, told Reuters. “OFAC stepped in to answer that question for us.”

A formal default would be largely symbolic, as Russia cannot borrow internationally at the moment and does not need to, thanks to abundant oil and gas export earnings. But the fact is likely to increase costs on future borrowings.

The payments in question are US$100 million in interest on two bonds, one in US dollars RU000A0JWHA4= and the other in euros RU234748670=, which Russia was supposed to have paid on 27 May. The payments had a 30-day grace period, which expired on Sunday.

Russia’s Ministry of Finance said it had made payments to its National Settlement Depository (NSD) in euros and dollars, adding that it had met its obligations.