Russia in historic foreign debt default as payment deadline expires

Russia defaulted on its foreign-currency debt for the first time in over a century, culminating in ever-stringent Western sanctions that shut down payment methods to overseas creditors.

For months, the nation found paths around the penalties imposed after it invaded Ukraine. But, the grace period on about $100 million of ensnared interest payments due May 27 terminated, a deadline thought of as an event of default if missed.

It’s a grim marker in the nation’s rapid transformation into an financial, economic, and political outcast. The country’s Eurobonds have traded at distressed levels since the beginning of March. Russia’s central bank’s foreign reserves remain frozen, and nation’s the biggest banks are severed from the global financial system.

Russia has fought back against the default designation, saying the country had the reserves to cover any bills and has been forced into non-payment. 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 the West for artificially manufacturing a “force-majeure” situation it said.

A formal declaration would usually come from rating firms, but European sanctions led to them withdrawing ratings on Russian entities. According to the documents for the notes whose grace period expired on June 27, 2022, holders can call one themselves if owners of 25% of the outstanding bonds agree that an “Event of Default” has occurred.