Russia denies debt default, blames Western financial agents

Russia’s finance ministry asked foreign bondholders to speak directly to those withholding their payments.

An electronic panel displays dollar currency symbol in Moscow
An electronic panel displays the dollar currency symbol at an exchange office at Tverskaya Street near the Kremlin in Moscow, Russia in 2021 [File: Maxim Shipenkov/EPA]

Russia has rejected claims that is has defaulted on its external debt for the first time in more than a century, telling investors to go to Western financial agents for the cash which Moscow claims was sent but bondholders did not receive.

The White House said on Monday that Russia had defaulted on its international bonds for the first time since the Bolshevik revolution, as sweeping sanctions amid Moscow’s war on Ukraine have effectively cut the country off from the global financial system.

“Statements of a default are absolutely unjustified,” Kremlin spokesperson Dmitry Peskov told a call with reporters on Monday, pointing to a forex coupon payment in May.

“The fact that Euroclear withheld this money and did not bring it to the recipients is not our problem. There are absolutely no grounds to call such a situation a default,” he said.

Euroclear did not immediately respond to a request for comment.

Until last week, Russia kept on paying on its Eurobonds in foreign currency, yet its dollar and euro coupon transfers made in May did not reach investors. Moscow owes $100m in interest on one bond priced in dollars and one priced in euros, which was originally due for payment on May 27.

On Monday, the Russian finance ministry said that “actions of foreign financial intermediaries are beyond the Russian finance ministry’s control”, and directed foreign bondholders to speak directly to those withholding the payments that Moscow claims to have made.

“The non-receipt of money by investors did not occur because of lack of payment but due to the third-party actions and which is not directly spelled out as a default situation by issue documentation,” the ministry added.

President Vladimir Putin ordered last week that debt obligations would be considered fulfilled once a rouble payment equal to the forex amount due was made. Bondholders would need to open an account at a Russian bank to receive such a payment.

‘Financial nuclear bomb’

The Group of Seven major Western powers banned transactions with Russia’s central bank and froze its assets held in their jurisdictions, worth about $300bn, after Russia invaded Ukraine in February.

Some Western politicians have called to seize the frozen Russian reserves to rebuild Ukraine – and it was such an idea that two high-ranked Russian financial sources said they believed was behind the announcement of default on Monday, and which Moscow considers artificial.

“By announcing a default, they can claim that sanctions work. Economically, financially, assets could be confiscated legally,” one of the two sources said.

Kremlin spokesperson Peskov reiterated on Monday that Russia’s reserves were blocked “unlawfully” and that any attempts to use them would “amount to outright theft”.

“I believe that a financial nuclear bomb was used against us, no country in the history of mankind has experienced such sanctions pressure as Russia is now,” Alexei Moiseev, Russian deputy finance minister, said last week.

Source: Reuters