Russian default just ‘a matter of time’ after Biden blocks bond payments

It is “a matter of time” before Russia defaults on its foreign debt after Joe Biden banned the Kremlin from paying its bondholders.

Moscow is on the cusp of its first foreign debt default in a century after the US waived a waiver that allowed Russia to meet its obligations to international creditors.

The lockdown, which means US banks and individuals are barred from receiving bond payments from Russia, comes before Moscow is due to make a tranche of payments worth around $100 million this Friday.

The Office for Foreign Assets Control said on Wednesday it would “not renew” provisions tabled in late February as part of the West’s fiscal salvo against Vladimir Putin.

The clock is now ticking for an international default that would be the first since the aftermath of the Bolshevik revolution.

The Kremlin hit back on Thursday, pledging to service its dollar debt in rubles — an option previously rejected by international lenders.

Anton Siluanov, Russia’s finance minister, said the situation had “nothing in common” with 1998, when the country defaulted on around $40 billion in domestic debt due to a lack of “sufficient funds”.

He said Russia is facing an “artificial situation created by an unfriendly nation,” adding, “We have the money and the willingness to pay.”

Coupon payments for three bonds are due this Friday, but most of the owners are said to be based outside the US, meaning a deal could still be possible if European banks don’t halt transactions amid fears of US reprisals.

Another tranche of bonds held primarily in the US is due next month. If this payment becomes impossible, Moscow enters a 30-day grace period, after which it is likely to be considered defaulted.

Timothy Ash, emerging markets strategist at BlueBay Asset Management, said it was “only a matter of time” before Russia defaulted. That outcome would further shake confidence in Russia’s status as a borrower, but would also leave international investors who have bought billions of dollars in bonds out of their own pockets.

“Russia will lose almost all market access – even to the Chinese – because of this default,” Mr Ash said. “It will mean no funding for Russia [and Russian companies] except for exorbitant interest rates. It means no capital, no investment and no growth.” Russian default just ‘a matter of time’ after Biden blocks bond payments

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