Russia goes into default zone as payment deadline expires

The clock on the Spasskaya Tower shows the noon time, next to the Kremlin and St. Basil’s Church in Moscow, March 31, 2020. REUTERS / Maxim Shemetov

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  • The offer expires on May 27 for $ 100 million in interest payments
  • Some Taiwanese journalists did not receive money on Monday – sources
  • Russia says it has funds to pay, because of sanctions
  • EU sanctions on expired US exemption, NSD Schuper Russia payments
  • The CDS team has already announced that a ‘credit event’ has taken place

LONDON, June 27 (Reuters) – Russia is preparing for its first sovereign default in decades, as some journalists said on Monday they had not received late interest following the deadline for major payments.

Pep. Russia has struggled to continue paying $ 40 billion in bonds since its invasion of Ukraine on the 24th, as tough sanctions have effectively cut off the country from the World Financial Organization and made its assets untouchable for many investors.

The Kremlin has repeatedly said there was no reason to repatriate Russia, but failed to send money to securities due to sanctions, accusing the West of trying to push it into an artificial default.

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Russia’s efforts to avoid its first major debt on international bonds since the Bolshevik Revolution a century ago hit an impassable roadblock in late May, when the US Treasury Department’s Office of Foreign Assets Control (OFAC) effectively blocked the payment to Moscow.

“Since March we have thought that the Russian default is inevitable, and the question is when,” said Dennis Hronitsky, head of the sovereign prosecution of law firm Quinn Emanuel, who told Reuters. “OFAC has intervened to answer that question for us. Default is now upon us.”

Since Russia currently cannot borrow internationally and does not have to thank for the large amount of oil and gas export earnings, a formal default will often be the code.

The questionable payments were $ 100 million in interest on two bonds, one in US dollars and the other in euros, due in Russia on May 27. Payments had a 30-day grace period, which expired on Sunday.

Russia’s Ministry of Finance said it had paid in Euros and dollars to the National Settlement Depository (NST) in its territory, adding that it had fulfilled its obligations.

Sources told Reuters that some of the Taiwanese holding the bonds did not receive the money on Monday. read more

For many bondholders, it is the default to not receive the money due on time in their accounts.

Prosecutors say Russia may stay until the end of the following business day to pay the securities, with no exact deadline specified in the prospectus.

Small print

The legal situation surrounding the securities seems to be complicated.

While Moscow has already faced sanctions in connection with the annexation of Crimea in 2014 and the poisoning of Britain in 2018, Russia’s bonds have been issued with a variety of unusual terms, and the level of ambiguity for what has recently been sold is increasing.

Rodrigo Olivers-Cominal, head of banking and finance law at Queen Mary University in London, said Russia needed clarity on the difference between getting rid of its debt or receiving and recovering money.

“All of these issues are subject to court interpretation, but Russia has not waived any of its sovereign exemptions and has not submitted to the jurisdiction of any of the two prospectuses,” Olivares-Caminal told Reuters.

In some ways, Russia is already in default.

The panel on derivatives ruled that a “credit event” had taken place in some of its securities, which prompted payments on some of Russia’s default transactions – instruments used by investors to repay debt. This was triggered by Russia’s failure to pay $ 1.9 million in interest on the amount due in early April. read more

Until the invasion of Ukraine, a sovereign default seemed unthinkable, until shortly before that Russia was valued as an investment standard. The default is unusual, as Moscow has the funds to pay off its debt.

The OFAC announced in early March a temporary rebate known as General License 9A, which would allow Moscow investors to make payments. It expires on May 25 as Washington tightens sanctions on Russia and effectively suspends payments to US investors and companies.

The expiration of the OFAC license is not the only hurdle facing Russia, as the EU imposed sanctions on Russia’s designated agent NSD for its Eurobonds in early June. read more

In recent days, Moscow has been scrambling to find ways to deal with upcoming payments and avoid defaults.

President Vladimir Putin signed a decree last Wednesday giving the government 10 days to begin interim procedures and select banks to make payments under a new scheme, suggesting that Russia would consider fulfilling its debt obligations when paying rubles to securities.

“Russia’s claim to comply with its obligations under the terms of the bond is not the whole story,” Zia Ullah, a partner at Eversheets Sutherland Law Firm and head of corporate crime and investigations, told Reuters.

“If you are not satisfied as an investor, for example, if you know that money is stuck in an escrow account, it will have a practical impact on what Russia says.

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Report by Karin Strowhecker; Additional report by Emily Chan in Taipei and Sujatha Rao in London; Editing by David Holmes, Emilia Sithol-Modris & Simon Cameron-Moore

Our standards: Thomson Reuters Trust Principles.

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