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27 Jun, 2022 16:29

Russia rejects default claims

All bond payments were made on time, Kremlin spokesman Dmitry Peskov insists
Russia rejects default claims

Russia has fulfilled its Eurobond obligations to foreign investors, and the fact that the funds were not forwarded to recipients due to Ukraine-related sanctions is no reason to declare a default, Kremlin spokesman Dmitry Peskov told reporters on Monday.

“No, we don’t agree,” Peskov said when asked by a reporter to comment on a report by Bloomberg claiming that Russia had defaulted on its debt for the first time since 1918.

Peskov said that such claims are “absolutely unjustified” since the payment on the Eurobonds was made well before the deadline in mid-May.

“And the fact that Euroclear withheld this money, did not transfer it to the recipients, this is no longer our problem. That is, there is no reason to call this a default,” Peskov explained.

Bloomberg’s report followed the end of the one-month grace period in which payments on Russia’s government bonds were supposed to be transferred to bondholders. Russia’s Ministry of Finance sent the funds to the National Settlement Depository on May 20, a week before the payments were due, so that the money could reach investors before the expiry of the US license that allowed Russia to service its external debt despite Ukraine-related sanctions. The license expired on May 25, after which Russia’s payments in dollars and euros were blocked in the international settlement and clearing system Euroclear. However, Euroclear failed to forward the funds to investors before the license expired.

Echoing Peskov’s words, the Russian Finance Ministry on Monday also reiterated that it had fulfilled Russia’s debt obligations in full in accordance with the Eurobond issuance documentation.

“However, international settlement and clearing systems, having received funds in full in advance, having the legal and financial ability to bring these funds to the final recipients, did not take the necessary steps to do this,” the ministry stated. It also noted that, according to the official documents for the Eurobond issue, a default is defined as a debtor’s failure to transfer funds, while there is no specific guidance on the further movement of these funds after they enter the clearing system.

“In this case, the non-receipt of money by investors did not occur as a result of the absence of payment, but due to the actions of third parties, which is not expressly provided for in the issuance documentation as an event of default,” the statement said.

The ministry added that Russia does not refuse to fulfill its debt obligations to investors and will continue to do so in the future and advised bondholders to contact the relevant financial institutions regarding the fate of their money directly, as “the actions of foreign financial intermediaries are beyond the control of the Russian Ministry of Finance.”

Last week, Russian President Vladimir Putin signed a decree that allows Russia to pay off its foreign currency debt through a ruble account at the exchange rate on the domestic market. To receive their funds, foreign investors need to open ruble accounts to which the ruble payments are to be transferred. After that, Russia's foreign-currency debt obligations will be considered “properly fulfilled.”

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