Western Sanctions Push Russia Into First Foreign Default in a Century

Russia defaulted on its foreign debt for the first time in over 100 years on Sunday amid western sanctions over its invasion of Ukraine, The Wall Street Journal reports.

Russia has plenty of money to pay off its foreign debt due to oil sales but the country missed payments on two foreign-currency bonds after western sanctions blocked the Kremlin from accessing foreign bank accounts or using cross-border payment systems to move cash.

It is Russia’s first foreign debt default since the 1918 Bolshevik Revolution.

Russia had until Sunday to pay $100 million to bondholders. The move is not expected to immediately impact Russia’s economy.

Legal challenges:

Since Russia has plenty of cash to pay the debt, the default is expected to pose a legal challenge.

Bond investors can declare a default but Russia can claim that its obligations were fulfilled, according to the Journal. It’s unclear what court would have jurisdiction to resolve the dispute.

“This is the messiest and most legally uncertain case of sovereign default that I can think of,” Mark Weidemaier, a sovereign-debt specialist and law professor at the University of North Carolina at Chapel Hill, told the outlet. “That’s got to be one of many things that makes investors nervous when they think about the prospect of suing the Russian government.”

Russia pushes ruble repayment:

Russian President Vladimir Putin last week signed a decree to send ruble payments to accounts of foreign bondholders at unsanctioned Russian banks.

The Russian Finance Ministry said it made about $400 million in payments last week to bondholders.

But bondholders may struggle to move the money out of the banks without violating Western sanctions.

Bondholders could demand immediate repayment but some are likely to remain patient.

“The market approach will be laying low. You might have creditors committees just to discuss and know who holds what,” Kaan Nazli, a bond portfolio manager at Neuberger Berman Group, told the Journal.


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