Argentinian record close to habitual bankruptcy… “It will take a long time to return to the global bond market.”
Fitch Says U.S. Treasury Bond Interest Pays In Rubles By Default
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(Seoul = Yonhap News) Reporter Kim Yun-koo = Russia’s government bond price fell below 10% of face value while Russia is on the brink of bankruptcy due to super-strong Western sanctions, The Wall Street Journal of the US (WSJ) reported on the 15th (local time).
The move in the bond market suggests that it will take a long time for Russia to return to the global financial system, the newspaper noted.
The first watershed for Russia to default (default) is the 16th. Russia has to pay interest of $117 million (regarding 145 billion won) on two dollar-denominated government bonds by today. These government bonds have a grace period of 30 days.
Russia has indicated that it will repay interest on dollar-denominated government bonds in rubles. Russia’s Finance Minister Anton Siluanov said on the 14th that it was “ready to pay in rubles”.
According to Archyde.com, international rating agency Fitch said in a statement on the same day that Russia would default on its debt following 30 days of grace period if it pays interest on two dollar-denominated government bonds in rubles.
Fitch also predicted that the credit rating of these two government bonds would be downgraded to ‘D’, indicating default, and Russia’s long-term credit rating would be lowered to ‘limited default’ following the grace period following the payment of rubles.
Russian government bonds fell below 10 cents per dollar last week, reaching the levels of Venezuela, which had defaulted five years ago, and nearing the lowest levels of several default Argentine bonds.
After that, Argentina was able to return to the global bond market following 15 years of fighting.
The dollar-denominated Russian government bonds are priced at 8 cents per dollar, according to Advantage Data, but fund managers said they are also trading at 5 cents. Argentine government bonds fell to 6 cents per dollar in 2009.
Until Russia invaded Ukraine, Russian government bonds were investment grade and traded around 100 cents per dollar.
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The so-called ‘vulture fund’, which invests in low-priced non-performing bonds ahead of the national bankruptcy, is also reluctant to use Russian government bonds.
Vulture funds collect bonds through negotiations or lawsuits when a country that has fallen into default tries to re-enter the international bond market, but it is difficult to implement this strategy once morest Russia.
Russia faced its first foreign currency default since the 1917 Bolshevik Revolution. During the 1998 financial crisis, Russia suffered a default on ruble-denominated government bonds and declared a moratorium on dollar-denominated government bonds. In 1998, the then-Russian government of Boris Yeltsin received support from the International Monetary Fund (IMF).
It is interesting to see what legal action creditors can take if Russia goes into default.
It will be difficult to bring Russia to the negotiating table, analysts say, as Russia can survive for years without raising funds from international markets.
According to credit rating agency Standard & Poor’s (S&P), as of last year, 80% of Russian government bonds were held by domestic investors. Investors don’t have much bargaining leverage when Russia is cashing in on oil exports.
Jay Newman, former portfolio manager at Elliott Management, who led an international lawsuit once morest Argentina in 2016, said bondholders would struggle to seize Russian foreign assets in lawsuits.
“Even if we win the case, it will be very difficult to enforce a court decision once morest a country like Russia,” he explained.
If foreign Russian bond holders try to negotiate debt settlement with Russia, the US or Europe will block them, said Carlos De Soza, fund manager at Bontobel Asset Management.
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