Standard & Poor’s cut Russia’s foreign currency rating to “selective default” as the risks of Moscow’s inability and unwillingness to meet its obligations to foreign debtors mount.
Facing waves of sanctions over Ukraine’s invasion, Russia could face its first external sovereign bankruptcy in more than a century after taking action this week to pay off international bonds in rubles, even though the payment was due in dollars.
According to S&P, Russia was understood to have paid the coupon and equity stake in dollar-denominated Eurobonds in rubles on Monday. “Currently, we do not expect that investors will be able to convert these ruble payments into dollars equivalent to the amounts originally owed, or that the government will convert these payments within a 30-day grace period,” they said.
The agency said that sanctions against Russia are likely to be tightened in the coming weeks, as they “hamper Russia’s willingness and technical ability to fulfill its obligations to foreign debtors.”
Russia’s finance minister said Thursday the country will do everything in its power to pay off its debt, but investors in Russia’s international bonds face an increasingly uncertain way to get their money back if the country becomes insolvent.
Standard & Poor’s will assign a selective default rating if it believes a debtor has selectively defaulted on a particular matter or group of liabilities but continues to meet its payment obligations on other issues or groups of liabilities in a timely manner.
Russia has not failed to repay its foreign debt since after the 1917 revolution, but its ties are now the focal point of the economic struggle with Western countries. Until recently, default was out of the question, as Russia was classified as investment grade prior to the February 24 invasion of Ukraine. (Reuters)
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