S&P Global ranks Russia in ‘Selective Default’

S&P Global placed Russia under “selected default” rating after the Russian government said last week that it had repaid about $ 650 million in dollar-denominated debt in rubles.

The rating agency said late on Friday that investors did not expect to be able to convert the ruble into US dollars, which was the equivalent of the original arrears, pushing Russia into the first default in sovereign foreign exchange debt in more than a century.

Bonds have a 30-day grace period, which gives the Russian government time to find other ways to pay in dollars or avoid default. S&P Global says the government did not expect Grace to convert payments in time.

“Sanctions on Russia are likely to increase further in the coming weeks, which will hamper Russia’s willingness and technical capacity to respect the terms and conditions of its obligations to foreign borrowers,” the rating agency said.

On April 4, a dollar-denominated Russian government bond matures and another coupon payment is due. On the same day, the US Treasury Department tightened its restrictions on Russian transactions, forcing Russia to choose between using the new revenues to destroy its dollar reserves or avoid defaults on its debt. The department barred Russia from using dollars held in American banks to pay off its bonds, and the transactions were not completed by JPMorgan. Subsequently, the Russian Ministry of Finance said that it had repaid the loan in rubles.

Although the finance ministry said it considered its debt obligations to be “fully met”, rating agencies said that paying in a currency other than the agreed currency would be a default. April 4 Bonds with arrears were not paid in any currency other than the dollar.

Following the invasion of Ukraine in late February, sanctions were imposed on Russia, including freezing the central bank’s reserves held abroad. Rating agencies then downgraded Russian debt to junk status and investors bet by default. But for weeks Russia continued to repay the debt. U.S. authorities have allowed the transaction and said U.S. bondholders will be allowed to repay the loan despite the ban until May 25.

If Russia does not repay the loan in dollars, it is not clear how the problem will be solved. As the 30-day grace period for bond payments expires on April 4, credit rating agencies will be barred from providing ratings to Russian companies by EU sanctions and will not be able to judge whether there is a default. . Companies are withdrawing all their ratings ahead of the EU’s April 15 deadline.

Last month, Russia’s finance minister, Anton Silvanov, accused countries that had frozen Russia’s internationally held currency reserves of trying to create an “artificial default”. Last week, the finance ministry said that if reserves became volatile, the ruble payment could be converted into dollars.

S&P Global also said Friday it maintains its “CC” junk debt rating for Russia’s sovereign debt in rubles (known as local currency debt) because it was not sure if non-resident bondholders would be able to access their coupon payments.

According to documents on the website of the Russian Ministry of Finance, coupons were being paid for local currency bonds. But in March, Russia stopped paying interest to non-residents.

“We do not currently have specific payment process information available,” the agency said

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