Russia’s payment on two bond coupons due on Wednesday in national currency instead of US dollars would constitute a sovereign default for the country, US credit rating agency Fitch said on Tuesday.
“The payment in local currency of Russia's US dollar Eurobond coupons due on 16 March would, if it were to occur, constitute a sovereign default, on expiry of the 30-day grace period,” Fitch said in a statement.
Sovereign default stands for the failure by a country to repay its national debts. This rating makes it more difficult and expensive for the country to borrow funds from foreign investors.
The Russian government has accused the West of engineering an artificial default which has no real economic grounds, because the country has money which it cannot use due to sanctions. Nearly half of Russia’s foreign currency reserves, worth $300 billion, have been frozen and the country’s banks have been cut off from the Western financial system. This makes it impossible for Moscow to pay bond holders in US currency.
“Claims that Russia cannot fulfill its sovereign debt obligations are untrue. We have the necessary funds to service our obligations,” Russian Finance Minister Anton Siluanov said on Monday.
Russia is due to make two coupon payments of roughly $117 million on Wednesday. Such obligations are traditionally paid in the currency of issuance, but according to Russian President Vladimir Putin’s decree of March 5, external debt payments to Russian creditors in countries that had joined Ukraine-related sanctions against the country are now to be paid in Russian national currency, the ruble.
According to Fitch, “such a forced redenomination of payment obligations” indicates “that a default or a default-like process has begun.”
The US-based rating agency adds that if the upcoming bond payment is made in rubles, Russia’s long-term foreign currency rating would drop to ‘Restricted Default’ by the end of the 30-day grace period.
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