Russia Defaulted On Foreign Debt For First Time In Century

Russia defaulted on its sovereign foreign-currency debt for the first time in a century, this became the culmination of ever-tougher Western sanctions that cut off payments to foreign creditors.

About this, as European Pravda writes, Bloomberg reports.

For months, Russia has been looking for ways to circumvent the penalties imposed after the Kremlin's invasion of Ukraine. But at the end of the day on Sunday, the USD 100 million interest grace period until May 27expired, which is considered a de facto default in the event of a missed payment.

As noted, this is a grim sign of the country's rapid transformation into an economic, financial and political pariah. Since the beginning of March, national Eurobonds have been trading at troubled levels, foreign exchange reserves of the central bank remain frozen, and the largest banks are cut off from the global financial system.

But given the damage the Russian economy and markets have already suffered, the default for now is also mostly symbolic and of little importance to Russians dealing with ambiguous inflation and the worst economic contraction in years.

Russia refused to recognize default, saying it had the funds to cover any bills and it was forced not to pay. Last week, Moscow announced it would switch to servicing its USD 40 billion of ruble-denominated sovereign debt, criticizing a force majeure situation it says the West has artificially created.

"It's a very, very rare thing when a government with funds is forced into default by an outside government. This will be one of the biggest critical defaults in history," said Hasan Malik, senior sovereign analyst at Loomis Sayles & Company LP.

The official announcement of default usually comes from the rating companies, but European sanctions have led to removing by them the ratings of Russian companies.

After the payment period expires, the focus shifts to what investors will do next.

They do not need to act immediately and may decide to follow the course of the war in the hope that the sanctions will eventually be eased.

"Most bondholders will take a wait-and-see approach," said Takahide Kiuchi, an economist at the Nomura Research Institute in Tokyo.

The last time Russia defaulted on its foreign creditors was more than a century ago, when the Bolsheviks under Lenin's leadership abandoned staggering czarist-era debt load in 1918.

As Ukrainian News Agency earlier reported, payments on Russian government bonds did not arrive on the accounts of foreign investors by the evening of May 27.

Earlier, the S&P rating agency downgraded Russia's foreign currency rating to "selective default".

On April 11, the American TV channel CNN, citing the S&P credit rating agency, reported that Russia had defaulted on its foreign debt.

For example, Russia offered bondholders payments in rubles rather than dollars. It is worth noting that in Russia itself this information is denied.

On April 7, Russian Prime Minister Mikhail Mishustin said that the Russian Federation is going through the most difficult situation in the last three decades due to Western sanctions.

Meanwhile, Moody's predicts Russia's default due to non-fulfillment of obligations to investors.