Russia is heading for the wall of bankruptcy

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Russia approached default (default) on Sunday night, in the absence of information that investors holding its international bonds would have received any payment, which foreshadows the country’s first non-payment of debts in recent decades, according to Reuters, quoted by News.ro.

Russia has sought to continue payments on the country’s $ 40 billion bond since its February 24 invasion of Ukraine, which has led to widespread sanctions that effectively took the country out of the global financial system and made its assets unattainable for many investors.

The Kremlin has repeatedly said there is no reason for Russia to default, but cannot send money to bondholders because of sanctions, accusing the West of trying to lead it into an artificial default.

The country’s efforts to avoid what would be its first breach of international obligations since the Bolshevik revolution more than a century ago hit an insurmountable hurdle when the U.S. Treasury Department’s Office for the Control of Foreign Assets (OFAC) effectively blocked Moscow from making payments in late May.

“Since March, we have thought that a Russian default is probably inevitable, and the question was exactly when,” Dennis Hranitzky, head of sovereign defaults at law firm Quinn Emanuel, told Reuters.

Although an official default would be largely symbolic, given that Russia cannot borrow internationally at this time and does not need to do so due to high oil and gas revenues, the stigma is likely to increase borrowing costs in future.

The payments in question are interest of $ 100 million for two bond issues, one denominated in US dollars and another in euros, which Russia should have paid on May 27.

Payments had a 30-day grace period, which expired on Sunday.

Russia’s finance ministry said it had made payments to the National Regulatory Depository (NSD) in euros and dollars, adding that it had fulfilled its obligations. However, funds are unlikely to find their way to many international holders.

For many bondholders, failure to receive the money owed to their accounts on time is a flaw.

Without an exact deadline specified in the prospectus, lawyers say Russia may have until the end of the next business day to pay bondholders.

The legal situation surrounding bonds seems complex. Russia’s bonds were issued with an unusual variety of terms and a growing level of ambiguity for those sold more recently, when Moscow was already facing sanctions for the annexation of Crimea in 2014 and a poisoning incident in Britain in 2018.

Rodrigo Olivares-Caminal, a professor of banking and finance law at Queen Mary University in London, said there was a need for clarity on what constitutes a discharge for Russia from its obligation or the difference between receiving and recovering payments.

“All these issues are subject to the interpretation of a court, but Russia has not waived its sovereign immunity and has not submitted to the jurisdiction of any court in either of the two prospects,” Olivares-Caminal told Reuters.

In some ways, Russia is already in default. A derivatives committee has ruled that a “credit event” has taken place for some of its securities, which has triggered a payment for some of Russia’s swap loans – instruments used by investors to secure exposure to debts.

This was triggered by the fact that Russia did not make a payment of $ 1.9 million, representing interest accrued for a payment that was due in early April.

Until the invasion of Ukraine, a sovereign default seemed inconceivable, with Russia being valued at the recommended investment rate shortly before that time. It would also be unusual, as Moscow has the funds to pay off its debt.