Russia is seeking a new way to circumvent US sanctions that prevent Moscow from continuing to service its dollar-denominated foreign bond payments to avoid bankruptcy.
The country is facing historic bankruptcy as the US Treasury Department on May 25 lifted the exemption from sanctions on Russia’s ability to repay its debt to US investors in dollars. The exemption allowed Russia to make payments to foreign dollar-denominated bondholders through US and international banks, thus avoiding bankruptcy.
On Friday, the Russian Ministry of Finance paid $ 100 million in interest on two Eurobonds in rubles in the domestic settlement system, but if this money is not credited to the bank accounts of bondholders abroad, it can be considered a default.
The payments have a 30-day grace period, after which Russia may be considered to have defaulted on its foreign currency debt for the first time since the 1917 Bolshevik revolution, despite the Kremlin claiming to have the required liquidity. This is a situation that has no precedent in a large economy.
Russia must also make $ 2 billion in payments before the end of this year, with some of these bonds, issued after 2014, allowing repayments in rubles or other currencies.
Russian Finance Minister Anton Siluanov reportedly told the Russian newspaper Vedomosti on Monday that Moscow would continue to service its foreign debt in rubles, but foreign Eurobond holders would have to open ruble and hard currency accounts in Russian to receive payments, that is, using a mechanism similar to that requested by the Kremlin for gas payments.
“As is the case with the payment for gas in rubles: we are credited in foreign currency, here it is exchanged for rubles on behalf of (the gas buyer) and so is the payment,” he was quoted as saying by Reuters.
According to the Russian minister, the settlement mechanism will operate in the same way, but in the opposite direction, and will be handled through the National Settlement Reservoir of Russia. The Russian National Settlement Depository, unlike other major Russian financial institutions, is not currently subject to US sanctions.
On Friday, however, the European Union included in its sanctions the Russian National Settlement Depository, which was intended to handle these bond payments, further complicating the situation for Moscow, as it substantially intensifies the Kremlin’s attempt to circumvent the sanctions. .
Source: Capital
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