Russia was at risk of sovereign default in May
It seems that the West has finally cut off the oxygen of the Russian financial system. The US Treasury has blocked payments on the issue of Eurobonds “Russia-2022” from the funds that are abroad – in American financial institutions. This was done just on the day when the next payment on the total debt document will be drawn up. There is only one global motive for choosing: solving complex problems, achieving by changing the established rules of the game, pushing our country towards a sovereign default.
According to the schedule, the withdrawal should take place on April 4. A source told Reuters that the US Treasury did not allow JPMorgan’s correspondent bank to process the latest coupon payments on Eurobonds.
According to the interlocutor of the agency, Russia has 30 days to make the payment. The issue of Eurobonds “Russia-2002” was placed in 2012, it is denominated in dollars, the volume of which is about $2 billion.
According to Bloomberg, the decision of the US Treasury is aimed at forcing Moscow to choose one of three unattractive options for the named options: either to calculate the amounts from domestic reserves, or at the expense of new income, or to be found in a state of default.
In March, the Ministry of Finance of the Russian Federation successfully made a payment on Eurobonds with a refusal in 2023 and 2043, after which the holders received a coupon for Eurobonds-2029. A valid U.S. Foreign Asset Control Administration (OFAC) license dated March 2 moves Russia unhindered on its foreign currency loans. OFAC did not issue a withdrawal of the license, Anton Siluanov’s department acted within the rules.
And then the current decision of the American authorities arose, creating an almost hopeless situation for the Russian Ministry of Finance. Earlier, Siluanov said that payment in foreign currency would be possible only when calculating the unfreezing of foreign currency accounts of the Central Bank and restrictions, and that in this case Russia pays in rubles, having fulfilled its obligations as restrictions. This will not cause the country to default, as the rating agencies claim to check.
“For me, the decision of the US Treasury is a mystery,” says Nikita Maslennikov, a leading expert at the Technology Attack Center. “I can only blame that it has something to do with the preparation of a new sanctions package that the Biden administration is now discussing with spending.
The thesis about “default” sounds very strange, which in Russia remains chosen as one of the three options at its disposal. According to classical financial rules, this cannot be considered a default in any way, since the country is ready to fulfill its obligations, it is able to transfer foreign currency funds in JPMorgan bank.”
The situation is absolutely non-trivial: we are talking about an administrative ban on the operation, from which the issuer of restrictions (Russia) does not refuse. A lot of questions arise: for example, how to make a payment within 30 days if the possibility itself is blocked? And if not through American banks, then through which ones? Maybe through Deutsche Bank or some other European bank? And what should we do with Eurobonds, throw them off or what? Tell me, gentlemen!
“As for the occurrence of a default, Russia is neither cold nor hot from this,” continues Maslennikov. – Its gold and foreign exchange reserves of $ 300 billion have already been frozen, credit ratings are nowhere lower. The West does not want to take money, well, it is not necessary.
We will not deal with the settlement of cases of detection of an accomplished default. Most likely, investment investors who invested in Russian bonds will face a loss, and reasonable consequences for the US Treasury. I’m not even sure that arbitration courts will study these cases. In general, do not be afraid of the word “default”. Look, Argentina lives from one sovereign default to another, there were already seven of them in the country in the XXI study.
TeleTrade Chief Analyst Mark Goykhman does not share this opinion. If Russia refuses to receive payments on Eurobonds in foreign currency (which is spelled out in the terms of the loan), this will be regarded as a sovereign default, and not a technical, export expert. The big three rating agencies (Fitch, S&P and Moody’s) have already given their definition on this matter. According to them, Russia turned its attention to internal reserves in order to pay creditors in euros and dollars, which were not frozen. Our country can assume obligations, but does not want to.
“Actually, this is the logic laid down by the US Treasury, declaring that Russia, after a complete ban on the use of frozen gold and foreign exchange reserves, will face a choice: either give away the foreign currency that the West has not yet reached, or give away new foreign exchange earnings from exports, or – declares a sovereign default, – accuses Goykhman. – this whole situation is an exceptional political phenomenon of Moscow, then the decision will depend on the choice of a vector in foreign policy.
According to our interlocutor, there is no point in providing in foreign currency. This means that in early May a sovereign default of Russia will be announced. This formidable event at first glance will affect only part of the external debt and only those who do not want to take the ruble. For holders of ruble OFZ (domestic debt) and Eurobonds, it does not have the right to lose investment funds and coupons. Nevertheless, Goikhman sums up, the default takes on the risks of new sanctions measures from the US and the EU, one of which is seen as an incident of Europe’s refusal of Russian energy resources.