Moody’s Says Russia May Have Defaulted on Obligations

A photo shows a Russian ruble coin and the logos of Visa, Mastercard, and Russian Mir payment systems on bank cards in Moscow on March 14, 2022. AFP via Getty Images

Ratings agency Moody’s has warned that Russia might have defaulted on its debt since it tried to service its dollar bonds in rubles due to Western sanctions.

“Russia reportedly made payments on two bonds maturing in 2022 and 2042 in rubles rather than US dollars which represents a change in payment terms relative to the original bond contracts and therefore may be considered a default under Moody’s definition if not cured by 4 May, which is the end of the grace period,” the ratings agency said in an April 14 statement, according to Reuters.

Though some Russian eurobonds issued after 2018 do have conditions that allow for payment in rubles, those issued prior to 2018—including the bonds maturing in 2022 and 2042—must be paid in dollars. Investors did not obtain the “foreign currency contractual promise” on the due date, Moody’s pointed out.

If Russia is considered to have defaulted, it would be the first time the country defaulted on foreign bonds since the years following the Bolshevik Revolution in 1917. In 1998, Russia defaulted on its domestic debt worth $40 billion.

Earlier on April 9, ratings agency S&P Global had cut down Russia’s rating to “selective default” on similar grounds after Moscow used rubles to make coupon and principal payments on dollar-denominated eurobonds on April 4.

“We currently don’t expect that investors will be able to convert those ruble payments into dollars equivalent to the originally due amounts, or that the government will convert those payments within a 30-day grace period,” the agency said.

S&P Global also predicted that as sanctions against Moscow are tightened, Russia’s ability to meet foreign debt obligations will be impeded. Russia’s external state debt was at $59.5 billion as of Feb. 1. However, the country’s corporate sector has racked up much more debt.

Following Russia’s attack on Ukraine, the foreign currency reserves held by the Russian central bank at U.S. financial institutions were frozen. Washington continued to allow Moscow to make some payments, but in early April, the U.S. Treasury fully cut off Russia’s access to those funds.

“Although the Russian Federation has required funds and honors [obligations] by remitting funds to accounts of holders of our Eurobonds, the Western banking structure nevertheless impedes crediting of these funds with specific beneficiaries and holders of our debt,” Finance Minister Anton Siluanov said to reporters on April 7.

The Kremlin has called for a new global financial system to replace the present one dominated by the West. Moscow is pushing for the BRICS nations—Brazil, Russia, India, China, and South Africa—to trade in national currencies and integrate payment mechanisms.

The BRICS alliance represents 40 percent of the global population and over 20 percent of the world’s gross domestic product.

Reuters contributed to this report.