For months, Russia had found paths around the penalties imposed after the Kremlin’s invasion of Ukraine. But at the end of the day on Sunday, the grace period on about $100 million of trapped interest payments due May 27 expired, a deadline considered an “Event of Default” if missed.The route to this point has been far from normal, as Russia has the resources to pay its bills — and tried to do so — but was blocked by the sanctions.
As it tried to twist its way out, it announced last week that it would switch to servicing its $40 billion of outstanding sovereign debt in rubles, criticizing a “force-majeure” situation it said was artificially manufactured by the West. While those bonds were issued after an agreement with the so-called London Club in 1997 to restructure Soviet-era debt held by Western banks, they were technically obligations of Vnesheconombank rather than the Russian Federation, according to apublished by the International Monetary Fund. In May 1999 the government also defaulted on a Soviet-era dollar bond, known as the MinFin III that was domestically issued, but was widely held by foreign investors.
By some measures it approached a trillion dollars in today’s money, according to Hassan Malik, senior sovereign analyst at Loomis Sayles & Company LP.the equivalent of almost $20 billion of Russia’s eurobonds as of the start of April. With payments blocked, Vladimir Putin introduced new regulations that say Russia’s obligations on foreign-currency bonds are fulfilled once the appropriate amount in rubles has been transferred to the local paying agent.