Russia narrowly avoided a debt default last week, but markets continue to value as if they are on the brink.
Bonds are still stuck at default levels and five-year CDSs have an 87% probability of default, which is lower than in April but still high.
The reason is that the trend of international governments towards tighter sanctions and wider restrictions is keeping investors in the dark as to whether they will receive future payments due to them.
Even if Moscow continues to push through the maze of rules for money, success is far from guaranteed.
“It is very likely that Russia will eventually go in default, “said EM Conseil Elena Daly, a Paris-based consulting firm specializing in sovereign debt management. In 2008-2009 we saw how quickly foreign exchange reserves could melt. It’s not just the upcoming debt service payments, but Russia also needs to finance the war machine and vital imports ”.
This is because the current measures imposed on Russia after its invasion of Ukraine have severely complicated payments, impeding and hindering the movement of funds.
Next, creditors are looking at a major loophole that has allowed investors to continue receiving bond payments, which – known as General License 9A, issued by the Office of US Foreign Assets Control – will close on May 25, two days before coupons worth approximately $ 100 million are due.
If the US Treasury extends the waiver, Russia can continue to pay through its unsanctioned banks as long as it has dollars and other currencies available locally.
Although the value of the payment paid on the last Friday of last April was not disclosed, the Russian finance ministry said in previously attempting to repay the $ 649 million owed to a US bank on April 6.
For its part, the United States sees this as a way to force Russia to burn off domestic savings. But for now, Moscow has a lot of money, thanks to the weekly influx of billions in sales of oil, gas and other goods, including Europe.
But if this loophole is closed and regulators in the European Union and the UK impose similar restrictions, defaults will come back to the table as another major via payment will be stopped.
“The potential default will still be determined by Russia’s willingness to pay, but geopolitical and political considerations, as well as the situation on the ground, are just as important,” said Natalia Goroshina, emerging market fixed income strategy economist at Eck. Associates Corp.
A bond – a denominated tranche in dollars due in 2026 – allows payments in euros, Swiss francs or pounds sterling, as well as interest payments in dollars on accounts in Switzerland, the United Kingdom or the European Union. If the borrower chooses this alternative solution, he will have given creditors at least five days’ notice, according to the loan documents.
The 2036 bond denominated in euro also contains an additional clause that allows payment in rubles. This is a small consolation for foreign investors: as international clearing houses no longer process Russian transactions, money is likely to remain in the Russian National Depository and Settlement Corporation or be transferred to a Type C account. in Russia opened in the name of bondholders.
Data compiled by Bloomberg, and reviewed by Al Arabiya.netshow that the next sovereign transfer which provides for payment exclusively in dollars will be on June 24, when interest on the sovereign bond expires for the year 2028.
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