Russia: ‘deadline’ for paying off its debt

A default by Russia on its external debt looks less likely this week after Moscow paid funds. But many questions remain unanswered.

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“This is the final deadline” for Russia to pay its creditors nearly $650 million on two bonds maturing in 2022 and 2042, Slim Souissi, deputy director of the IUP in Caen, told AFP.

May 4th is a catch-up session: Moscow should normally pay on April 4th. But American authorities had prevented him from using dollars held in American banks. Accordingly, the Russian government had announced that it would settle its obligations in rubles.

Except that such a payment in rubles was not provided for in the contract with the creditors. And so it could be seen as Russia’s fault to allow 30 days at the end of a “grace period” to find a solution.

It would be Russia’s first default on its external debt since 1918.

Russia said on Friday it paid off its debt on the two bonds in dollars without using funds held at a bank in the United States. Information confirmed to AFP on Tuesday by an official American source, who argues that this reduces the reserves Moscow can draw on to fund the war.

The London branch of the Citigroup bank, which is responsible for distributing the dollars to creditors, did not confirm on Wednesday whether the payments had been made. But Bloomberg said three creditors received money.

Slim Souissi says he is “confident” of a favorable outcome for Moscow. This opinion appears to be shared in financial markets, where the price of insurance (credit default swaps or CDS) protecting against a Russian default has fallen sharply in recent days, a sign of lower demand.

For its part, the international creditors’ committee (CDDC), which is responsible for activating or not activating these insurance policies, announced on Tuesday evening that it was continuing to “monitor” the situation.

“Generally speaking, when a country defaults, it constrains its financial capacity for a very long time,” like Greece, whose access to the international debt market was cut off for several years, reminds AFP Tim Samples, law professor at the University of Georgia in the United States .

In the event of a default, Russia would lose access to a major source of funding or be forced to pay prohibitive interest rates – it is virtually unable to borrow due to Western sanctions.

Announcing a default is also crucial for holders of unpaid debts who risk losing some or even all of their money.

The situation also threatens to raise legal concerns: Russia’s commitments are particularly vague on jurisdiction to resolve lender-borrower disputes, several legal experts interviewed told AFP. “These commitments are very unusual,” believes Tim Samples, “their ambiguity will lead to a delicate conflict.”

If Russia meets the May 4 deadline, it will not be out of the woods this year.

In 2022, the government still has thirteen deadlines to meet. The next, on May 27, will cost 100 million euros in interest on two bonds: one requires payment only in dollars, euros, pounds or Swiss francs; the other can optionally be paid in rubles.

According to the Ministry of Finance, Russia’s foreign debt is about 4500-4700 billion rubles (about fifty billion euros at the current exchange rate), or 20% of the total national debt.

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