(Bloomberg) — Russia will service its dollar debt in rubles after the expiry of a sanctions loophole closed the option of payments in the US currency, potentially putting Moscow on track to default.
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The announcement came a day after the US confirmed the end of the waiver, creating another headache for Russia as it tries to get funds to investors. A payment in rubles would breach the terms on a 2026 dollar bond with coupons due this Friday, triggering a 30-day grace period before Russia could potentially slip into default.
Russia faces an “artificial situation created by an unfriendly nation,” Finance Minister Anton Siluanov said in a statement. “We have the money and the willingness to pay.”
The ruble payments will be made to foreign investors’ type ‘C’ accounts, which they will be able to access after applying to Russia’s National Settlement Depository, the ministry said. It’s unclear how that process would play out, however, and whether investors would ultimately be able to retrieve the payments.
Russia is being pushed closer to default by sanctions and restrictions imposed as punishment for its invasion of Ukraine. US banks and individuals are barred from accepting bond payments from Russia’s government since 12:01 a.m. New York time on Wednesday.
Russia is scheduled to make about $100 million in foreign debt payments Friday. Given the expiry of the loophole was expected, it started transferring the money last week to get ahead of the new restrictions. It said at the time that because the funds had gone to the paying agent, its obligations on the debt were fulfilled.
Of Russia’s upcoming payments, only the 2036 euro-denominated bond with a coupon due Friday allows for payments in rubles. The 2026, with a dollar denomination, only lists sterling, euros or francs as alternative currencies, according to the bond documents. For the next three payments at the end of June, the bond documents also don’t include the ruble as an alternative currency for payments.
In April, Moody’s Investors Service said an attempt by Russia to pay dollar bonds in rubles rather than greenbacks would be “considered a default” if the situation isn’t remedied within 30 days of the money being due. Ultimately, Russia transferred the funds in dollars with days left before the grace period expired.
“The current situation has nothing in common with 1998, when Russia didn’t have sufficient funds to pay its debts,” Siluanov said, referring to the year Russia defaulted on about $40 billion of its local bonds.
(Updates with details throughout)
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