Moscow is getting closer to defaulting on foreign currency payments. The financial rating agency S&P Global Ratings on Saturday (April 9th) lowered Russia’s rating for its payments in foreign currencies, to the level of “selective default”, after Moscow settled in rubles a debt in dollars to the beginning of the week.
The agency’s rating for payments in foreign currencies such as the dollar is downgraded to “SD”, while the rating remains at “CC” for payments in rubles, according to a statement from the agency. It remains only one notch lower than SD in the scale of the agency: the note “D”, for default.
“We do not believe that investors will be able to convert these ruble payments into dollars equivalent to the amounts originally due, nor that the government will convert these payments within the 30-day grace period”believes S&P, in the context of the invasion of Ukraine by the Russian army and the sanctions aimed at the country.
The agency also announces that it will immediately stop its ratings on Russia, in accordance with the requirements of the European Union. S&P believes that the sanctions against Russia are likely to be tightened in the coming weeks, “hindering Russia’s willingness and technical capabilities to honor the terms and conditions of its obligations to foreign debtors”.
Like all states, Russia borrows money in the form of bonds, often in dollars, and must regularly pay interest and repay the capital. A country is considered in default of payment when it is unable to honor its financial commitments to its creditors, which may be States, financial institutions (International Monetary Fund, World Bank, etc.) or investors on the financial markets . The default is qualified as partial when the State does not reimburse part of its obligations.
For several weeks, Russia has averted the danger of a default, as the US Treasury has allowed the use of foreign currencies held by Moscow abroad to settle foreign debts. In March, Russia thus paid several tranches of interest, demonstrating its willingness and ability to repay. But since Monday, the United States no longer allows Russia to repay its debt with dollars held in American banks. As a result, JPMorgan, which acted as correspondent bank, blocked a payment. As a result, the Russian Finance Ministry announced on Wednesday that it had settled in rubles nearly $650 million due on April 4.