Russia may have defaulted on its foreign debt after trying to service its dollar bonds in rubles, according to credit rating agency Moody’s.
Russia made payment on two sovereign bonds due by April 4th in rubles rather than dollars, with Moody’s noting that such a move was not permitted under the terms of the securities.
“The bond contracts have no provision for repayment in any other currency other than dollars,” the agency said in a statement.
Moody’s added that “a change in payment terms relative to the original bond contracts and therefore may be considered a default under Moody’s definition if not cured by 4 May, which is the end of the grace period”.
Should such a scenario arise it would be Russia’s first major default on foreign bonds since 1918 following the Bolshevik revolution, an indication of the impact international sanctions are having on Moscow.
Russia did default on domestic debts in the 1990s following the collapse of the Soviet Union, but managed to avoid defaulting on foreign debts thanks to international assistance.
S&P Global Ratings downgraded Russia last week, classing the country as in “selective default” after servicing some debts in rubles. A selective default occurs when a borrower pays some debts but not others.
Russia claims to have no alternative but to pay its debts in rubles, claiming that international sanctions placed on the country in light of the invasion of Ukraine have made it impossible to access foreign reserves to make payments.
Russia’s finance ministry said that it tried to make a $649 million payment toward two bonds to a US bank but this was not accepted due to sanctions. Finance minister Anton Siluanov has warned of legal action should Russia be forced to default on its sovereign debt.