Russia claims to have made good on $117 million in interest payments due this week on two dollar-based bonds. But its status over sanctions could put those or future payments in limbo and risk Russia defaulting on foreign debt for the first time in more than a century. The foreign currency reserves Russia has to pay its debts are technically frozen over sanctions implemented when the country invaded Ukraine.
“We have the money, we made the payment, now the ball is in America’s court,” Russian Finance Minister Anton Siluanov said in an interview with state media.
The U.S. Treasury Department said U.S. sanctions do not prevent the frozen funds from being transferred to pay debts. However, bondholders reported not receiving money by the deadline. On Thursday, Reuters reported two bondholders had received payments a day late while others were still awaiting payment.
Technically, Russia has a 30-day grace period to reach a deal before an official default. The clock started ticking Wednesday when the $117 million in interest payments were due.
Russia has said it’ll pay in rubles if its frozen dollars are blocked, but that action would almost certainly trigger default, according to Fitch Ratings. Dollar-based bonds must be paid back in dollars.
On Thursday, S&P Global Ratings cut Russia’s credit rating again, indicating the country’s debt is “highly vulnerable to nonpayment.”
If Russia were to default on its foreign debt, it would be the first time since after the Bolshevik Revolution in 1918. More recently, Russia defaulted on local-government debt in 1998 as the post-Soviet economy struggled to gain ground.
