US credit rating agency Moody’s has raised a red flag over Russia’s sovereign debt, saying the nation may face its first major default on foreign bonds since the years following the Bolshevik Revolution of 1917.
The warning comes days after Russia made a payment on two sovereign bonds, maturing in 2022 and 2042, in rubles rather than dollars as mandated by the terms of the securities. This was after the US blocked attempts by Russia to pay the debt in dollars held in American bank accounts.
Russia “therefore may be considered [in] default under Moody’s definition if not cured by 4 May, which is the end of the grace period,” the New York-based agency said in a statement released on Thursday.
“The bond contracts have no provision for repayment in any other currency other than dollars.”
The firm said that while some Russian Eurobonds issued after 2018 allow payments in rubles under certain conditions, those issued before 2018, including those maturing in 2022 and 2042, do not allow it.
“Moody’s view is that investors did not obtain the foreign-currency contractual promise on the payment due date,” Moody’s said.
Earlier this month, the US Treasury stopped Russia from paying holders of its sovereign debt more than $600 million from reserves held in US bank accounts, saying that Moscow had to choose between draining its dollar reserves and default.
Freezing nearly half of the foreign currency reserves was part of the Western sanctions imposed on Moscow over its military operation in Ukraine. The Kremlin has repeatedly dismissed the notion of default, saying the country has the funds and is willing to pay its debt. Moscow has instead described the blocking of payments as a default by the West on its financial obligations to Russia.
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