Russia’s Next Bond Payment Deadline Approaches — Nation Might Default

Russia surprised most of the world when it paid its sovereign bond debts on time. With another deadline looming, will the country default?

Rachel Curry - Author

Mar. 29 2022, Published 11:51 a.m. ET

Russian President Vladimir Putin
Source: Getty

Russia narrowly paid back creditors on certain bond debts in mid-March, but the story isn’t over yet. More payment deadlines are in the pipeline for Russia, whose credit rating has deteriorated to “junk status,” according to Fitch Ratings.

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Russia owes interest and principal payments on a $2 billion dollar-denominated bond debt, with a sum due by next week. Critics say it’s possible the country will default, but Russia says otherwise.

Russia owes money on a $2 billion dollar-denominated bond debt.

According to a Russian regulatory filing, the nation is preparing to pay interest and principal payments on a $2 billion dollar-denominated bond debt. The payment is poised to come on April 4. Successful payment will be a major signal that Russia’s faulty credit rating could potentially be overcome — at least in the short term.

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A dollar-denominated bond, or dollar bond, is a bond that’s issued within the U.S. by foreign governments (in this case, the Russian government).

Russia avoided default with a $117 million bond interest payment.

In mid-March, Russia paid $117 million for a bond interest payment to creditors and avoided default in the process. Critics posited the potential outcome that Russia would default on that debt, but the reality proved to be different. Still, it’s possible that Russia could default on its future debt payment deadlines, such as the massive payment on the $2 billion debt that’s expected in early April.

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Frozen assets are a big reason why Russia could default.

Western sanctions have caused some of the government’s international currency reserves to freeze, which means Russia could be having trouble coming up with payments for its various bond debts. Still, the country could manage to pay thanks to loopholes that allow asset transfers for the sole purpose of debt repayments. Russia’s finance minister says the $2 billion debt payment is incoming.

How likely is it that Russia will default on its next payments?

According to research firm MSCI, Russia still has a 55-percent chance of defaulting on its debt. This is much lower than previous estimates, which said Russia had an 80-percent chance of defaulting. About half of investors think Russia will default in the next 12 months.

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The interest and principal payments Russia plans to pay in the coming days are just a small fraction of what the nation owes. Russia owes about $2.6 billion in total, which means there’s still plenty of opportunity for a default.

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Russia does receive a 30-day grace period for its payments, but if the nation fails to make payments it will have to go into negotiations with bondholders. These negotiations may not end up well for bondholders, who could be out an immense amount of money.

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Russia hasn’t defaulted on any debt since 1998 when the Russian financial crisis caused the government to default and the ruble to lose an immense amount of value.

As the Russian war with Ukraine rolls on, the financial health of Russia and its people remains in question.


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