U.S. stops Russian bond payments, raising risk of default: Russia pays US$650 million in rubles

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https://markets.businessinsider.com/news/bonds/russia-default-debt-bonds-payment-rubles-us-dollars-treasury-sanctions-2022-4

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April 5, 20226:35 PM GMT+8 Last Updated an hour ago

By Megan Davies

and Alexandra Alper

NEW YORK/WASHINGTON, April 5 (Reuters) – The United States stopped the Russian government on Monday from paying holders of its sovereign debt more than $600 million from reserves held at U.S. banks, in a move meant to ratchet up pressure on Moscow and eat into its holdings of dollars.

Under sanctions put in place after Russia invaded Ukraine on Feb. 24, foreign currency reserves held by the Russian central bank at U.S. financial institutions were frozen.

On Monday, as the largest of the payments came due, including a $552.4 million principal payment on a maturing bond, the U.S. government decided to cut off Moscow’s access to the frozen funds, according to a U.S. Treasury spokesperson.

An $84 million coupon payment was also due on Monday on a 2042 sovereign dollar bond .

The move was meant to force Moscow to make the difficult decision of whether it would use dollars that it has access to for payments on its debt or for other purposes, including supporting its war effort, the spokesperson said.

Russia faces a historic default if it chooses to not do so.

“Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default,” the spokesperson said.
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Russia does have the wherewithal to pay from reserves, since sanctions have frozen roughly half of some $640 billion in Russia’s gold and foreign currency reserves.
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Russia, which has a total of 15 international bonds outstanding with a face value of around $40 billion, has managed to avoid defaulting on its international debt despite unprecedented Western sanctions. But the task is getting harder. read more

“What they’re basically tying to do is force their hand and put even more pressure on (to deplete) foreign-currency reserves back home,” said David Wolber, a sanctions lawyer at Gibson Dunn in Hong Kong.

“If they have to do that, obviously that takes away from Russia’s ability to use those dollars for other activities, in essence to fund the war.”

It may also put pressure on Russian demands to be paid roubles for gas by European customers, he added.
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If Russia fails to make any of its upcoming bond payments within their pre-defined timeframes, or pays in roubles where dollars, euros or another currency is specified, it will constitute a default. read more

While Russia is not able to access international borrowing markets due to sanctions, a default would prohibit it from accessing those markets until creditors are fully repaid and any legal cases stemming from the default are settled. read more

https://www.reuters.com/business/us-cracks-down-russian-debt-payments-latest-sovereign-payments-halted-2022-04-05/

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