Is Russia insolvent?

Russia missed a deadline on Sunday night to pay $100 million in interest on two Eurobonds released in May. It was the first time since the currency crisis of 1998. Or the first time since the Bolshevik revolution of 1917, depending on who you believe.

Does that mean it can’t pay?

It’s hard to see how. It earns billions of foreign currency thanks to its huge oil and gas reserves. Russia itself just denies this idea in any case. A spokesman for Vladimir Putin today said suggestions of Russia defaulting were “completely unreasonable”. Russia wants to pay its debts in rubles, which is probably the problem. Investors want to receive them in dollars.

So while it may be honoring this debt, there are $40 billion in other outstanding bonds that could be more problematic. Russia has been essentially cut off from the global financial system since it invaded Ukraine in February.

But as far as Russia knows, this is a “technical” default, not a fact.

What does the White House say?

G7 leaders are meeting to discuss the viability of Russia’s oil price cap, the latest sanctions aimed at putting pressure on Vladimir Putin over the Ukraine invasion.

The White House cites the Bolshevik revolution of 1917 as the last time Russia failed to pay its debts. It’s PR, good PR, more than anything, designed to show that sanctions are working.

“It’s very, very rare for a government that can afford to be forced into default by an outside government,” Hassan Malik, senior sovereign rights analyst at Loomis Sayles, told Bloomberg. It would be one of the major watershed defaults in history. “

What does this mean in practice?

So far not much. The market barely reacted today. A Russian bond maturing in 2036 is trading at 20 cents on the dollar. But that was before. For analysts, Russia’s default is, as they say, “priced in”.

The ruble has appreciated 40% against the dollar since the beginning of the year. After all, it is in demand, if only in Russia.

What happens next?

Add sanctions to see if they bite. And more pain for the Russian people. Later, if ever, it can be much more expensive to borrow money from big investors, assuming that can be forgiven in the first place.

For now, it’s up to bondholders to decide if they want to try and get back what they can, maybe 25% of what they’re owed. Or wait and see what happens and then sue. Since a lot of Russian assets are frozen by the courts, it is likely that they will be mostly waiting.

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