Russia fell into a default on foreign debt more than 100 years after the Bolshevik Revolution on the 26th (local time), drawing keen attention to its impact on the global financial market.
According to Bloomberg and other foreign media, Russia failed to pay interest on two foreign currency-denominated government bonds until the previous day.
The interest amount to be paid in dollars and euros is about $100 million, and the original maturity date was on the 27th of last month, but the 30-day grace period for payment was set, and the default was officially established that day.
However, investment analysts believe that the default will have a limited impact on the global financial market.
Russia declared a moratorium on ruble-denominated bonds in the summer of 1998. At that time, there was a concern that it would shake the entire U.S. financial and banking system.
Long Term Capital Management, a large U.S. hedge fund company that made a lot of money through arbitrage based on Russian ruble bonds, collapsed, and the U.S. government had to provide a bailout to prevent it from spreading to the global financial crisis.
However, the general assessment is that the current situation is different from then.
Bondholders, including funds investing in emerging market bonds, may suffer serious losses by default, but Russia’s share in the emerging market bond index itself is insignificant.
The global financial market is putting more weight on the symbolism that the incident is the first foreign debt default in Russia in more than 100 years.
Bolsheviks, the leading force of the Russian revolution, refused to repay foreign debts in 1918 saying they could not recognize the debts of the Tsar system.
The default is due to blocking Russia’s foreign debt interest payment channel as part of Western financial sanctions, which could complicate future problems.
Russia is not in a situation where it cannot pay off foreign debts due to huge funds obtained from oil and gas sales, and has completed its repayment obligation by sending interest payments in dollars and euros to Euroclear, an international depository company. Due to sanctions, deposits cannot only be made to individual investors.
Russian Finance Minister Anton Siluanov criticized the situation, saying, “The West has created an artificial barrier to label Russia as ‘default’,” adding, “This situation is ridiculous.”
Russia also codified a plan last week to pay rubles to bondholders under a decree signed by President Vladimir Putin.
The Wall Street Journal (WSJ) explained that 25% of bondholders can file a debt fulfillment lawsuit with the Russian government if they demand “immediate repayment.” The deadline for filing a lawsuit is three years.
The media added that there is a possibility that a lawsuit may proceed in the U.S. or British courts as Russia has not unusually determined the jurisdiction of the dispute while issuing bonds.
However, ABC predicted that it would not be easy for creditors to start litigation at a time when the Ukrainian war would end or how much default bonds would be worth.