Page 51 - RusRPTJul22

2.18 Russia defaults on $100mn bond
Russia has denied that it has defaulted on a $100mn bond payment, the Ministry of Finance saying that the money had been sent to bond holders, in dollars, in May but it was not the Kremlin’s fault if the cash was not distributed to bondholders.
With a ban on allowing Russia to make international bond payments looming at the end of May, Russia’s Ministry of Finance rushed through the coupon payments on a bond payment that came due on May 27, just days ahead of the deadline.
The US Treasury Department (USTD) Office of Foreign Assets Control (OFAC) allowed a licence that exempted international transfers of dollars to pay off bond obligations to expire on May 25, making it impossible for Russia to meet its debt obligations. Russia has both the resources to make the payments and is willing. The Ministry of Finance says that if the money was not received then that is a force majeure and no fault of its own.
However, the correspondent banks didn’t forward the money to bondholders because of the ban that came into effect only days later and the money was returned to Russia. If more than 25% of bondholders do not receive payment they can trigger a default after a 30 day grace period. That deadline passed on June 26.
Moody’s was the first of the major rating agencies to confirm that Russia is now officially in default of its debt, its first default since 1998.
"On 27 June, holders of Russia's sovereign debt had not received coupon payments on two Eurobonds worth $100mn by the time the 30-calendar-day grace period expired, which we consider an event of default under our definition," a statement from Moody’s said.
Moody’s recalls that this is the third default since February (using a broad definition) on Russian obligations. The first was in March, when the Ministry of Finance froze coupon income (RUB11.2bn) on two OFZ issues for non-residents due to the Central Bank's ban. The second concerns the redemption of rubles of most of the issue of Eurobonds for $2bn with maturity on April 4. According to Moody's classification, this was a default event of the forced exchange type.
The decision by Moody’s triggers the credit default swaps (CDS) insurance on the bonds for those investors that bought CDS cover, although analysts say collecting on the payments will be messy. For those investors that didn’t buy CDS they still have the option to collect their payments in rubles.
51 RUSSIA Country Report October 2020 www.intellinews.com