Russia said it had made payments on two dollar-denominated bonds, potentially staving off a default on the country’s foreign debt.
The nearly $650 million in payments were made in dollars to a London branch of Citigroup Inc. that processes payments on behalf of bondholders, Russia’s finance ministry said Friday.
The money from Russia’s bond payments must land in bondholders’ accounts by Wednesday, the end of a 30-day grace period after Russia missed a payment in early April. Otherwise, the country can officially be called in default by its creditors.
The move to pay in dollars marked a reversal, as Russia’s finance ministry had earlier insisted on making the bond payments in rubles.
Western sanctions imposed over Russia’s invasion of Ukraine have complicated the country’s efforts to make sovereign bond payments. In early April, the Biden administration blocked Russia from using U.S. banks to make good on foreign debt payments. By doing so, the White House revoked an earlier exemption that had allowed Moscow to use American bank accounts to stay current on its public debts and effectively pushed Russia toward default.
Russia’s finance ministry in April tried to remit funds owed to creditors through its correspondent bank, JPMorgan Chase, but the bank declined to process the payments because the U.S. Treasury didn’t grant approval. Russia then said it had paid the bondholders in rubles, after which it said it considered its obligations fulfilled.
But foreign creditors saw the situation differently. Under the terms of both bonds, payments must be made in dollars. An industry body overseeing swap contracts that insure against default on Russia’s dollar bonds recently ruled that the Kremlin would fail to meet its obligations by paying creditors in rubles. Credit ratings agencies have also said that ruble payments aren’t sufficient and would lead to default.
By backing down and paying in dollars, Russia is apparently hoping to avoid the consequences and complex ripple effects that could result from being declared in default.
Still, Russia isn’t out of the woods yet. The U.S. could still potentially trip up Russia by seeking to block the money from flowing into the hands of bondholders by the end of the grace period, or Citigroup could decline to pass on the funds on behalf of the Kremlin.
Russia made the payments tapping funds that haven’t been frozen by sanctions, according to a bondholder who has been tracking Moscow’s efforts to make the payments.
Russia has stayed current on its foreign debts since the beginning of the conflict with Ukraine, but the latest payments were the first to come after the Biden administration’s roadblocks, which severely complicated Russia’s ability to service its debt.
