Rating agency Moody’s has confirmed that Russia is defaulting on its external debt for the first time in a century after bondholders failed to receive $100 million in interest payments.
The historic default follows a series of unprecedented Western sanctions that increasingly isolated Russia from the global financial system following its invasion of Ukraine.
Russia lost its last chance to service its foreign currency loans after the United States last month lifted a waiver that allowed US investors to receive Moscow’s payments.
“As of June 27, by the end of the 30-day grace period, holders of Russian government bonds had not received coupon payments on two US$100 million Eurobonds, which we define as a default event,” Moody’s said.
Moscow said on Monday there was “no reason to call this situation a default” as the payments did not reach creditors due to “the actions of third parties”.
Russian authorities insist they have the means to pay off the country’s debt, calling the predicament a “farce” and accusing the West of promoting an “artificial” default.
Moody’s warned that further defaults were “probable”.
Moody’s issued an “issuer comment” in lieu of a formal declaration of default as sanctions prevent rating agencies from covering Russia’s sovereign debt.
– “Limited” effects –
The sanctions included a $300 billion freeze on the Russian government’s foreign exchange reserves held abroad, making it difficult for Moscow to service its foreign debt.
After the United States closed the latest payment loophole last month, Russia said it would pay debts in rubles that could be converted into foreign currency, using a Russian financial institution as a paying agent.
But Moody’s said it would “likely treat payments in rubles as a default for bonds that don’t allow for such a switch in the contract terms.”
Noting that Moody’s no longer covers Russia, Kremlin spokesman Dmitry Peskov said, “Does this mean that Moody’s has restarted the rating process? The agency certainly needs to explain itself.”
The country last defaulted on its foreign debts in 1918, when the Bolshevik revolutionary leader Vladimir Ilich Lenin refused to recognize the massive debts of the overthrown tsarist regime.
Russia defaulted on its domestic debt in 1998 when falling commodity prices hit a financial squeeze that prevented it from supporting the ruble and paying off debts accumulated during the first war in Chechnya.
The second most senior International Monetary Fund official, Gita Gopinath, said in March that a Russian default would have a “limited” impact on the global financial system.
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