Russia faces a first bond repayment deadline on Wednesday that threatens it with default as its overseas assets are frozen by Western sanctions.
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On Wednesday, Moscow must repay $117 million on two Eurobonds, the first in a series of several maturities in March-April.
But today, in retaliation for the Russian military intervention in Ukraine, the portion of Russian reserves held abroad, around $300 billion, is frozen under Western sanctions.
On Monday, the Ministry of Finance announced that it had sent “a payment order to the correspondent bank concerning the payment (…) of a total amount of 117.2 million dollars”.
Stating that the bank is American, Finance Minister Anton Silouanov said Wednesday that “currently, while the payment is being processed, we have had no message” regarding its status.
“He hasn’t passed yet. But we know that the bank is negotiating with OFAC (Office of Foreign Assets Control of the US Treasury Department), and has requested the necessary information from us regarding the purpose of the payment. So for now we will wait for information from our bank,” he continued.
“Indeed, there are risks that this payment will not reach the final recipients. Why ? Because our dollar account is blocked,” he added.
Mr. Silouanov had threatened Monday to repay Russian debts in rubles.
“Statements that Russia cannot meet its obligations regarding its public debt do not correspond to reality,” he insisted, accusing the West of wanting to “cause an artificial default”.
If Russia cannot pay, a 30-day period will begin following which Russia will be declared in default on its foreign debt, a first since 1918, when Lenin reneged on the country’s obligations.
But a certain vagueness remains around this first deadline. JPMorgan analysts believe that these payments should be possible.
The US Treasury specifies that the payment of interest is possible until May 25, 2022, for US persons, on bonds issued before March 1, 2022 by the Central Bank of Russia, a Russian sovereign wealth fund, or the Ministry of Finance.
After this date, they will need authorization to continue receiving these payments.
Western sanctions have crippled part of the Russian banking and financial system and caused a collapse of the rouble. A payment default cuts a state off from the financial markets and jeopardizes its return for years.
