The United States on Wednesday brought Russia close to the brink of a historic default by not extending Moscow’s license to pay bondholders as the pressure increased after Russia’s invasion of Ukraine.
A license that allows Russia to pay interest payments and terms on government debt to individuals in the United States, which expires at 1:01 a.m. GMT on Wednesday, will expire, the U.S. Treasury Department said on its website on Tuesday.
This exemption allowed Moscow to continue its government debt payments, but the maturity now appears to be defaulting on at least some of its $40 billion international bonds – the country’s first major foreign default in more than a century.
“Russia will default on its government debt if bondholders don’t get their money in time, given the prevailing grace periods,” said Jay Auslander, partner at law firm Wilk Auslander. “Once the license is gone, there seems to be no way for bondholders to get paid.”
Russia’s finance ministry said on Wednesday it has the money and willingness to pay it, and that Moscow will repay its foreign debt in rubles, which can then be converted into the currency of the original eurobonds.
The US decision not to extend the exemption that allows Russia to pay its bonds in foreign currency will affect foreign investors first, the ministry said.
“The Russian economy is already heavily sanctioned, so the immediate consequences of default are unlikely to mean much for the economy,” said Alexey Bulgakov, head of fixed income research at Renaissance Capital.
However, the default would prevent Moscow from regaining access to international capital markets until creditors are fully repaid and legal cases arising from the default are resolved.
A default can create barriers to trade if countries or companies that would normally do business with Russia have self-imposed rules that prevent them from doing business with a defaulting entity.
source: Noticias
