Russian creditors await bail payment as Moscow says money has been sent

A sign is displayed outside the Russian Finance Ministry building in Moscow, Russia March 30, 2021. REUTERS/Maxim Shemetov

LONDON, March 17 (Reuters) – Russia said on Thursday it had paid off its debt this week, but the announcement did not end the wait for what could be Moscow’s first loan default. external sources for more than a century, with several creditors saying the funds had not yet been received.

Russia was due to pay $117 million in coupons on two dollar-denominated sovereign bonds on Wednesday, widely seen as the first test of whether Moscow will meet its obligations after Western sanctions hampered its financial transactions.

It has a 30-day grace period from Wednesday’s deadline.

Sanctions imposed following Moscow’s invasion of Ukraine have cut Russia off from the global financial system and blocked most of its gold and currency reserves, while Moscow has in turn retaliated, complicating payments. Read more

Russia’s Finance Ministry said on Thursday that its order to pay the $117 million had been executed and said it would notify the market separately if the payment had been deposited into the account of payment agent Citibank (CN). .

Citi’s London branch declined to comment.

But a number of creditors and people familiar with the situation in Asia and Europe said the funds had not yet been received by bondholders.

Two market sources told Reuters that Russia had made a transfer to the correspondent bank, which they named JPMorgan, but said it was not immediately clear whether those funds had been transferred to Citi to pay the bondholders due to US sanctions restrictions on Russia.

JPMorgan declined to comment.

“Russia may have wired money to pay, but it’s possible the transfer agent and custodian are playing hardball,” one person said, saying Western banks are increasingly wary of relations with Russia and may be reluctant to send funds.

The Ministry of Finance had planned to send the equivalent amount of the interest payment in rubles if the dollar payments did not reach foreign bondholders, which credit rating agency Fitch said would constitute a default. sovereign, if not corrected within a 30-day grace period. Read more

Typically, a country would pay overseas creditors by sending money to a correspondent bank, which transfers the funds to the securities paying agent, in this case Citi, before it is disbursed on the depository accounts of individual holders through settlement stages to confirm ownership of assets. .

NAVIGATING PENALTIES

The round of international sanctions has raised questions about whether such complex, multi-step transactions would face difficulties, not least because Russia’s central bank is among the institutions targeted by Western sanctions.

“The fact is that from the beginning we said that Russia has all the funds and the potential to prevent a default – there can be no default,” the spokesman said Thursday. Kremlin, Dmitry Peskov, during a daily press briefing.

“Any flaw that might arise would be entirely artificial,” Peskov said.

Russia has 15 international bonds with a face value of about $40 billion outstanding, about half of which are held by foreign investors.

The coupon payments due on March 16 are the first of several, with an additional $615 million due over the rest of the month. The first principal payment is due on April 4 when a $2 billion bond matures.

Bonds have a mix of terms and deeds. Bonds sold after Russia faced sanctions for its 2014 annexation of Crimea contain a provision for payments in alternative currencies. Those listed after 2018 have rubles as an alternative currency option.

A so-called non-payment event could trigger Russian default insurance policies known as Credit Default Swaps (CDS) that investors take out for this kind of situation.

JPMorgan wrote in a previous note that it estimated there were approximately $6 billion worth of CDS outstanding that would need to be paid.

A committee to consider whether or not CDS payments are due is due to meet later on Thursday. It was not immediately clear what precisely was on the agenda of the committee, which is made up of the major banks and funds involved in the CDS market.

The U.S. Office of Foreign Assets Control (OFAC) said on March 2 that it had authorized transactions for U.S. persons for “the receipt of interest, dividends, or payments when due in connection with debts or equity” issued by the Russian Ministry of Finance, central bank or wealth fund, but the exemption expires on May 25.

Russia must pay nearly $2 billion on its external sovereign bonds after that May 25 deadline and through the end of the year.

Reuters reporting; Written by Karin Strohecker; Editing by Edmund Blair

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