Russian Finance Minister Anton Siluanov underlined this week that the country will settle the bill in rubles should the dollar transfer fail. But this has led to concerns as for the time being, Russia has managed to avoid default after J P Morgan processed the funds.
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Fears of a Russian bond default receded as $117 million in interest charges due this week began to hit international investors, averting a breach which would have infused yet more anxiety into global credit markets.
On Friday, money managers in the United Kingdom, Germany, and the United States announced that they had collected coupon payments on two Russian Eurobonds which were scheduled on Wednesday.
Investors were relieved by the announcement, as it demonstrated that Russia was still capable — and prepared — to pay its foreign obligations amid the sweeping sanctions that have cut Russia off from much of the global banking system.
However, it was just the first in a set of tests of Russia’s capacity to cover its foreign loans, with credit-rating agencies still predicting a considerable chance of default as the Ukraine conflict drags on and sanctions bite hard. According to statistics collated by Bloomberg, Russia has at least $488 million in interest payments due within next 10 weeks, and also a $2 billion bond due later.
“We have numerous more coupon payments and redemptions coming due in the rest of the year and over the next 12 to 18 months,” in an interview with Bloomberg Television earlier on Friday, Cristian Maggio, director of portfolio strategy at Toronto Dominion Bank in London, remarked. “The market will be holding its breath for quite some time.”
Inability to make regular payments — or payments in a currency other than that specified in the loan contracts — may potentially result in a cascade of defaults among the government’s and Russian enterprises’ approximately $150 billion in foreign-currency debt. Some investors have cautioned that if investors begin to avoid risk and more nations are locked out of financial markets, a Russian collapse may lead to a global sovereign debt catastrophe.
S&P Global Ratings said on Thursday that if Russia’s payments aren’t available to foreign investors or aren’t in the proper currency, it might be considered in default. Furthermore, a loophole in US sanctions that permitted financial intermediaries to handle bond payments will expire in May, raising significant legal challenges.
Creditors are likely to assess a substantially higher likelihood of default once the “carve out” expires in May, according to Anthony Kettle, rising markets portfolio manager at BlueBay Asset Management.
On Friday, the money managers who claimed to have received the cash received notice of the credit on their accounts. Because they aren’t permitted to speak publicly, they refused to be identified.
If a dollar transfer fails, Russian Finance Minister Anton Siluanov underlined this week that the country will settle the bill in rubles. Bondholders would have had the right to claim a default after a 30-day grace period if Russia had paid in its own currency, according to credit rating agencies such as Fitch Ratings.
The increased market interest in each step of the coupon payment procedure demonstrates how convoluted Russia’s relationship with international investors has grown.
The energy-rich country has become the world’s most sanctioned in the weeks since its operation of Ukraine, and its credit rating has been reduced to the lowest levels of trash. According to Bloomberg data, it is the only country in the world with a C rating from Fitch, one notch over default, and it has been lowered to such low levels by other rating agencies.
“I can’t remember a time when there has been more uncertainty over a sovereign — the Argentina default back in 2001 was messy but predictable,” said Gary Kirk, a portfolio manager at TwentyFour Asset Management. “This is far more difficult due to the global sanctions.”
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There used to be a saying within the British Banking sector – ‘if you owe the bank a thousand and you cannot pay, you have a problem. If you owe the bank a million and cannot pay, the bank has a problem’! Scale that up to today’s millions and billions and the same applies.
The whole FIAT money system is a scam, a game of Monopoly with the additional rule that ‘the banker may print more money any time he wants to and can never go bankrupt’!