Moody’s says Russia defaulted on debt

• Russia has defaulted on its foreign debt after failing to pay bondholders $100 million in interest.
• The last time Russia missed a payment on a foreign loan was in 1918
• when Vladimir Ilich Lenin refused to acknowledge the obligations of the ousted tsar’s regime.

Moody’s ratings agency revealed that Russia has for the first time in a century defaulted on its foreign debt after failing to pay bondholders $100 million in interest.

The historic default comes after a string of unheard-of Western sanctions that, in response to Russia’s invasion of Ukraine, have further cut Moscow off from the world economy.

After the United States revoked an exemption last month that permitted US investors to receive Moscow’s payments, Russia lost the final means of repaying its foreign-currency loans.

According to Moody’s, an event of default occurred on June 27 because holders of Russia’s sovereign debt had not yet received coupon payments on two eurobonds worth $100 million when the 30-calendar-day grace period passed.

Moscow stated on Monday that there were “no grounds to label this scenario a default” because the payments were delayed by “the activities of third parties” and did not reach the creditors.

The Russian government maintains it has the resources to pay its debts, labelling the situation a “farce” and blaming the West for encouraging a “artificial” default.

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According to Moody’s, additional defaults “are likely.”

In lieu of a formal declaration of default due to restrictions prohibiting credit rating firms from covering Russia’s sovereign debt, Moody’s instead issued a “issuer comment.”

“Limited” effect
The $300 billion in foreign currency reserves held by the Russian government have been frozen as a result of the sanctions, making it more challenging for Moscow to pay its foreign debts.
After the United States closed the last payment loophole last month, Russia announced it would settle debt using a Russian financial institution as the paying agent and pay in rubles that could be converted into foreign money.

However, according to Moody’s, it “would probably treat payments in rubles as a default for bonds that do not permit such redenomination in the contractual provisions.”

The last time the nation missed a payment on a foreign loan was in 1918, when Vladimir Ilich Lenin, the leader of the Bolshevik revolution, refused to acknowledge the significant obligations of the ousted tsar’s regime.

Due to a decline in commodity prices, Russia experienced a financial crisis in 1998 that prevented it from supporting the currency and repaying debts incurred during the first Chechen conflict. As a result, Russia went into default on its domestic debt.

Gita Gopinath, the second-ranking official at the International Monetary Fund, said in March that the effects of a Russian default on the world financial system would be “minimal.”

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