U.S. credit rating agency Standard & Poor’s (S&P) said Russia was already in default because Russia said it would repay its creditors with rubles.
According to CNN on the 11th (local time), S&P said on the 8th that Russia attempted to repay two dollar-denominated debts that expired on the 4th in ruble.
S&P said this is a “conditional default” because investors will not be able to “change the ruble to the same dollar as the original amount they were supposed to receive.” Conditional defaults are declared when certain obligations, not the entire debt, are not complied with.
Russia has received a 30-day grace period to pay principal and interest since the 4th, but S&P said it expects the ruble to be unable to convert into dollars given that Western sanctions undermine Russia’s “will and ability to comply with contractual obligations.”
If a full-scale Russian default occurs, it will be the first time in more than 100 years since Bolsheviks leader Vladimir Lenin refused to repay the Tsar government’s debts.
Russia cannot use $315 billion in foreign reserves due to sanctions. Until last week, the U.S. allowed Russia to repay certain investors’ debts in dollars with frozen assets, but the U.S. Treasury later banned Russia from using foreign currency assets in U.S. banks to pressure Vladimir Putin to reduce war ambitions. JP Morgan estimates that Russia has $40 billion in debt due at the end of last year, half of which is owed to foreign investors.
Meanwhile, the Russian government is preparing legal action against the possibility of default.