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Russia Avoids Default Again As $447 Million in Bond Payments Go Through

April 1, 2022

Russia avoided a default as one of its dollar-denominated bond payments went through on Thursday.
JPMorgan, Russia’s foreign correspond bank, processed the payments, a source told Insider.
Last week, Clearstream blocked Russia from the National Settlement Depository, which receives foreign bond payments.

Russia again avoided a bond default Thursday after roughly $447 million in payments for dollar-denominated debt went through.

JPMorgan, which is Russia’s foreign correspond bank, processed the payment after checking with the US authorities, a person familiar with the matter told Insider. JPMorgan declined to comment.

Bondholders can now expect to receive $87.5 million in coupons and $359 million in principal payments.

However, Western sanctions slapped on Russia following its invasion of Ukraine have meant money is only slowly trickling through the system, as banks seek approval from the US Treasury to process funds.

Russia has so far kept up payments on its foreign currency denominated bonds, despite major ratings agencies saying in early March that a debt default was highly likely.

The country last defaulted fully on its foreign bonds in 1918, when communist revolutionaries refused to honor the Tsar’s debts.

The payment comes even though the government’s ability to pay its foreign debts was thrown into doubt last week when Clearstream, a company that settles international payments, blocked Russia’s National Settlement Depository account.

Further questions were asked when Russia offered to buy back a $2 billion bond, which matures April 4, in rubles.

However, the Finance Ministry later clarified that it had offered to pay in rubles to ensure that the money reaches domestic bondholders. Bloomberg reported that foreign holders would receive dollars.

Russia’s commitment to making its foreign payments has surprised some analysts. The country has already been frozen out of global capital markets, which is the traditional punishment met out to governments who default on their debts.

“It has been quite clear that the government doesn’t want to default at the moment,” Althea Spinozzi, senior fixed income strategist at Saxo Bank, told Insider.

“Russia wants to keep the capability, wants to continue to keep a good credit profile because once it can access international markets again it wants physically to have a good relationship with investors,” she said.

Investors will be keeping a close eye on the upcoming $2 billion bond maturity payment on April 4. The government must then make a further $1.9 billion worth of payments before the end of the year.

Russia’s central bank has scrambled to keep the economy afloat since the war in Ukraine began. It doubled interest rates in February and limited foreigners from moving money, among other moves.

Read more: The founder of a commodities ETF provider managing over $1.5 billion shares his outlook for 8 assets that have experienced major supply chain disruption and elevated prices during the Ukraine crisis