Will holders of Russian bonds maturing in 2023 and 2043 finally receive their coupons? Since the start of the invasion of Ukraine and the implementation of major international sanctions, the question of a possible default of payment by the country has been a concern in financial circles. A priori, they had every reason to be pessimistic. Following the freezing of its central bank’s assets, Russia imposed capital controls to limit currency outflows. As for the United States, they have banned all transactions in Russian securities.
On Thursday, however, investors were beginning to regain hope. Russian Finance Minister Anton Silouanov assured that on March 14, Russia gave the order to pay the $117 million in interest (due March 16) to a correspondent bank. He said he would try to make the settlement first in dollars and then, if that failed, in roubles.
JPMorgan Chase sent the funds to Citigroup
According to financial news agencies Reuters and Bloomberg, Russia’s correspondent bank is JPMorgan Chase and it handled the funds intended for the payment of interest due on Russian bonds well. She sent them to Citigroup, which acts as a payment agent, after requesting and obtaining authorization from US authorities on Wednesday. The role of the paying agent includes collecting coupon payments from bond issuers and distributing the funds to investors.
So far, bondholders in Europe have still not received anything. Investors are watching the chain of events closely as this modest coupon payment gives an idea of how Russia views its relationship with international markets.
Resources needed to avoid default
Kremlin spokesman Dmitry Peskov said the country had the resources to avoid a default. Finance Minister Anton Silouanov said on Wednesday that it was up to the United States to authorize or not the payment of the two coupons.
The issue is important. Russia, banished from the international financial system by the sanctions, has no interest in closing the door to the markets definitively. She might need to call on it to finance herself once the war is over. However, a default marks people’s minds and obliges borrowers to concede much higher interest rates on their debt when they return to solicit investors.
A $150 billion problem
In all, the Russian government and companies like Gazprom or Lukoil have around $150 billion in foreign currency bond debt. For now, most specialists rule out a domino effect on the markets. Fitch said in a note that “European bond funds dedicated to emerging markets [présentaient] a limited risk of contagion for the financial system in the broad sense. »
According to the rating agency, “these funds have little exposure to Russia, Ukraine and Belarus, which should limit the risk of a sharp increase in withdrawal requests [de la part des investisseurs]. »