Russia was plunged into a historic default by sanctions

  • The offer period of $ 100 million in interest payable on May 27 ended on Sunday
  • Shows the dramatic impact of Russia’s default sanctions – US official
  • Some Taiwanese journalists did not receive money on Monday – sources
  • Russia says it has the money to pay, because of sanctions
  • Expired US Exemption, NSD Scooper EU Sanctions on Russia Money

LONDON, June 27 (Reuters) – The White House says Russia has failed to repay its international bonds for more than a century, with severe sanctions effectively cutting off the country from the World Financial Organization and making its assets untouchable.

The Kremlin, which has the money to pay through oil and gas revenues, quickly rejected the demands and accused the West of bringing it to artificial default. read more

Earlier, he had said that some securities did not receive interest due on Monday following the expiry of the deadline for major payments on Sunday. read more

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Russia has struggled to continue paying $ 40 billion in securities since its invasion of Ukraine on February 24.

“This morning’s news around the discovery of Russia’s default for the first time in more than a century shows how strong the actions taken by the United States, its allies and partners, as well as its impact on the Russian economy,” said a U.S. official on the sidelines of the G7 summit in Germany. read more

Russia’s efforts to avoid its first major debt on international securities since the Bolshevik Revolution a century ago, in late May, effectively prevented the US Treasury Department’s Office of Foreign Assets Control (OFAC) from making payments to Moscow.

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“Since March we have thought the Russian default is inevitable, and when is the question,” law firm Quinn Emanuel’s sovereign prosecutor Dennis Hronitsky told Reuters ahead of Sunday’s deadline.

“OFAC has intervened to answer that question for us. Default is now upon us.”

Since Russia will not be able to borrow internationally at this time and will not have to thank for its large oil and gas export earnings, the formal default will often be indicative. But the stigma will probably increase its borrowing costs in the future.

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

Russia’s Ministry of Finance has said it paid in euros and dollars to its offshore National Settlement Depository (NST).

In a press conference, the Kremlin spokesman Dmitry Peskov said that it was “not our problem” that payments by euroclear were blocked due to Western sanctions on Russia. read more

The Clearing House did not respond to a request for comment.

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

Proponents of her case have been working to make the actual transcript of this statement available online.

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

Credit rating agencies usually downgrade a country’s credit rating to reflect default, but this does not apply to Russia as most agencies do not value the country.

Legal issue

The legal situation surrounding the securities seems to be complicated.

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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,” Olivares-Caminal told Reuters.

In some ways, Russia is already in default.

The panel on derivatives ruled that there was a “credit event” in some of Russia’s bonds, which prompted payments on some of Russia’s default transactions – tools used by insurers to insure against credit defaults.

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, shortly before that Russia had an investment rating. The default is unusual, as Moscow has the funds to pay off its debt.

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

Expired OFAC license is not the only obstacle in Russia. In early June, the European Union imposed sanctions on NSD, Russia’s designated agent for its eurobonds. read more

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Moscow has been trying for the past few days to find ways to deal with upcoming payments and avoid defaults.

President Vladimir Putin signed an order last Wednesday giving the government 10 days to begin interim procedures and select banks to make payments under a new scheme, recommending that Russia consider the debt obligations fulfilled when making payments to the ruble and maritime securities in Russia.

“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, the answer will be until you fulfill the obligation. Do not meet the terms of the bond.”

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Report by Karin Strowhecker in London, Andrea Shalal in Elma and Emily Chan in Taipei and Sujatha Rao in London; Editing by David Holmes, Emilia Sithol-Modris, Simon Cameron-Moore and Jane Merriman

Our standards: Thomson Reuters Trust Principles.

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