The United States pushed Russia closer to the brink of a historic debt default on Wednesday by not extending its license to pay bondholders, as Washington ramps up pressure following Russia’s invasion of Ukraine.
The U.S. Treasury Department said on its website late on Tuesday it would let lapse a license which expired at 12:01 a.m. ET (0401 GMT) on Wednesday and allowed Russia to make interest and maturity payments on its sovereign debt to U.S. persons.
That waiver has allowed Russia to keep up government debt payments, but its expiry now appears to make a default inevitable on at least some its $40 billion of international bonds – Russia’s first major external one for more than a century.
Western sanctions imposed after the Kremlin’s Feb. 24 invasion of Ukraine, and countermeasures from Moscow, have complicated the movement of money across borders, yet Russia has made a conscious effort to keep paying bondholders.
But with almost $2 billion worth of payments falling due before year-end, it may soon run out of road.
“If the bondholders don’t get their money when the money is due, factoring in any grace periods that apply, Russia will be in default on a sovereign debt,” said Jay Auslander, a partner at law firm Wilk Auslander. “With the waiver gone, there seems to be no way for bondholders to get paid.”
On Friday, Russia had rushed forward payments on two international bonds – one denominated in euros and one in dollars – a week before their due date. According to the finance ministry, the money was sent in euros and dollars to the National Settlement Depository (NSD) in Moscow.
But its dash to get the money into creditors’ bank accounts ahead of the waiver’s expiry might not have left enough time for what is often a multi-day payment process.
One Asia-based bondholder said the payment had not arrived in the firm’s account by Wednesday. Russia has a 30-day grace period on the two payments.
