According to its Ministry of Finance, Russia has managed to pay interest payments on its debt in rubles, whereas the latter is denominated in dollars because of Western sanctions linked to the military offensive in Ukraine.
“Funds for the payment of a coupon on external bonds of the Russian Federation maturing in 2027 and 2047 in the total amount of 12.51 billion rubles [l’équivalent de 234,85 millions de dollars] have been received by the payment agency for Eurobonds National Settlement Depository (NSD)”, wrote the Russian Ministry of Finance in a press release quoted on June 23 by AFP. “Thus, the bonds […] of the Russian Federation are fulfilled in their entirety by the Ministry of Finance of Russia”, specifies the text.
In this press release, the ministry indicates that it is basing itself on a new temporary payment system which came into force by a presidential decree published the day before. This system provides that, when a deadline arrives, the Ministry of Finance transfers the equivalent in rubles of the funds to the NSD, a centralized Russian body responsible for the deposit of financial securities traded in the country and sanctioned by the European Union.
The NSD takes care of repaying creditors in rubles at the rate of the Central Bank, in order “to ensure the maximum equivalence of payments”. If the creditors are Russian, the funds are transferred “bypassing foreign intermediaries”, specifies the Ministry of Finance. But if the securities are held abroad, the funds will be transferred to special ruble accounts, a mechanism similar to that used for gas payments.
Russia intends to reassure investors
In a question-and-answer page published on the Russian government’s website, Finance Minister Anton Silouanov assured that “in order to protect investors against the risk of exchange rate fluctuations, these funds will be indexed at the current rate ruble […] until the moment of effective payments to the owners”. The minister once again denied the risk of a Russian default, accusing “foreign counterparties” of “refusing to make payments in foreign currencies, which is a situation of force majeure for [le pays]”.
“Everyone will say what they want […]every day an investor wants or can come and get his money, the equivalent in rubles will be waiting for him,” he added, calling the situation a “farce.”
At the end of May, Russia announced that it would repay its foreign debt in roubles, no longer able to do so in dollars because of the sanctions, despite its significant financial liquidity. However, a repayment in a currency other than that in which a debt was denominated exposes the debtor to a default on his debt.
Since the three major international financial rating agencies no longer rate Russia, it is up to an organization bringing together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia misses payments to its creditors. According to AFP, this committee of creditors affirmed at the beginning of June that the country had not honored the payment of interest on its debt to the tune of 1.9 million dollars due on April 4.
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