War, sanctions and disrupted payment systems have left the holders of about $150 billion in bonds sold by Russia and its companies abroad bracing for defaults. Fears eased in mid-March when the first interest payments due since Russia’s invasion of Ukraine came through, proving that at least some of the country’s borrowers could still service their foreign currency bonds. The relief was short-lived. In early April, an attempt to pay Russian government dollar-debt obligations was rejected by foreign banks, increasing the risk of the country’s first sovereign default since 1998.
Russia’s Finance Ministry said it still made the payments by transferring the money in rubles to a special account for foreigners with the country’s National Settlement Depository, citing a local decree allowing foreign debt payments in local currency. However, neither of the securities involved allowed payment in rubles, according to bond documents. Credit assessors including Fitch Ratings and S&P Global have said Russia will be considered in default if it doesn’t pay coupon payments in dollars within a 30-day grace period. Shortly after the dollar payment was rejected, the cost of insuring Russia’s government debt surged to signal a record 99% chance of default within the year.