Ukraine war: Moody's rating agency announces default by Russia

Created: 2022-06-28Updated: 2022-06-28 09:41

By: Thomas Schmidtutz

Red Square in Moscow: The rating agency Moody's has now officially declared Russia's default.

© Jens Kalaene/dpa

Russia has problems paying off its debts abroad because of Western sanctions.

The rating agency Moody's has now determined the default.

Update Jun 28 08:21

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The US rating agency Moody's

default by Russia due to late payment of debts to international investors.

In the specific case, it is about interest payments on two government bonds that have not reached creditors even after a default period of 30 days, the US company announced on Monday (local time) in New York.

Due to Western sanctions, Russia is currently almost completely cut off from the international capital market and is therefore unable to make the payments.

The US government had taken the forthcoming default on Monday at the G7 summit in Bavaria as proof that the sanctions against Russia were working.

Kremlin spokesman Dmitry Peskov had rejected the allegations of insolvency.

Russia has made the due bond payments.

If these do not reach creditors because of the sanctions, this is not Moscow's problem, said Peskov.

However, experts consider the consequences of the default for the financial markets to be limited.

In recent months, many observers had expected Russia to default on payments due to the sanctions.

However, there is no state bankruptcy, since the giant empire is sitting on foreign exchange reserves worth billions.

The last time the country failed to settle its accounts with international creditors was in 1918 after the Bolshevik revolution.

Russia facing default - Kremlin spokesman counters: "Not our problem"

Update, June 27, 12:15 p.m.

– Kremlin spokesman Dimitri Peskov has rejected Western speculation about an imminent default by Russia.

The allegations are "unlawful," the Russian news site Gazeta Peskov quoted the Putin spokesman on Twitter.

According to this, the Russian Federation had already made the relevant payments “in foreign currency” last May.

"The fact that these did not reach the recipients is not our problem," explained Peskov, referring to the comprehensive sanctions against Russian banks. 

Russia on the verge of default - Russian finance minister rumbles: "It's a farce"

First report from June 27, 2022

- Russia is about to default on foreign debt for the first time in over 100 years.

According to a report by the Reuters news agency, several investors in Taiwan had not received payments that were actually due by Sunday evening.

However, there is disagreement among lawyers as to whether the deadline for the Kremlin's settlement officially ended on Sunday evening or only at the end of the following working day, i.e. on Monday (June 27).

However, in view of the harsh financial sanctions imposed by the West, observers do not expect the situation to change by Monday evening and the Kremlin to be able to serve its creditors after all.

Should this last deadline also expire, it would be the first Russian default (default) on foreign debt since 1918.

Russian bonds: grace period expires

In this specific case, it is about two foreign currency bonds with a volume of 29 million euros and a government bond for 71 million dollars.

Originally, Russia should have made the corresponding interest payments for both bonds on May 27, but missed the deadline.

This started a 30-day grace period that is now ending.

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Looming default: Russian finance minister rumbles

Moscow has recently repeatedly rejected the accusation of insufficient solvency.

The threat of non-payment is a "farce," the Russian Finance Minister Anton Siluanov rumbled a few days ago.

Billions of dollars from energy exports poured into the treasury every week.

But because of the sanctions in force, the bonds that are due cannot be serviced.

It is obvious that the West is deliberately trying to drive Russia into insolvency, the Kremlin said several times recently.

Because of the attack on Ukraine, the West had cut off the largest Russian banks from the global financial system and frozen the Russian central bank's multi-billion dollar currency reserves.

Impending payment default: manageable in the short term

In the short term, the consequences of a possible Russian default are likely to remain limited, analysts at Dekabank said.

After all, Russia is currently hardly indebted.

The ratio of total debt to economic output is currently around twenty percent.

In addition, only a small part of the national debt is in the hands of foreign creditors.

In the medium term, however, the risks of default can hardly be foreseen at present.

First, at least 25 percent of the affected creditors would have to determine a formal payment default.

It is currently questionable whether this would result in a so-called cross-default.

In this case, not only the bonds affected by the current default, but all of Russia's external debt would be considered non-performing.

However, it remains to be seen whether such a step would stand up in international courts.