An international committee decided Wednesday that Russia committed a “failure to pay” credit event when it missed a $1.9 million interest payment on one of its sovereign bonds in April. This is a sign that the Kremlin is getting close to its first foreign debt default since World War I.
According to the results of a vote by the Credit Derivatives Determinations Committee, a group of institutions that keeps an eye on the derivatives market, Russia broke the rules of an international dollar-denominated bond that came due on April 4 because it didn’t pay the interest during a grace period.
Some of the banks that voted to confirm a “failure to pay” event were Credit Suisse, Goldman Sachs, JPMorgan Chase, and Barclays.
Russia first tried to pay the dollar-denominated bond in rubles, which would have led to a default. Russia then changed its mind and paid the bond in dollars within a 30-day grace period. Bloomberg said that the late payment did not include the $1.9 million in interest that was added because of the delay.
Investors asked the committee to decide if Russia was breaking the rules because they wanted to collect on credit-default swaps, which are like insurance against bonds not being paid.
According to the outlet, the swaps covered a net amount of about $1.5 billion in Russian debt that was still due as of the end of May.
Even though Russia missed an interest payment, it is not yet in default on its other bond payments. Under the terms of its Eurobond agreements, a so-called “cross default” would only happen if Russia didn’t pay at least $75 million.
Since the Kremlin invaded Ukraine in late February, the West has put in place crippling sanctions that have put Russia on the verge of default for weeks. As part of these punishments, Russian banks were kicked out of the SWIFT international payments system and huge amounts of Russia’s foreign currency and gold reserves were frozen.
Last week, the White House said that it was likely that Russia would not be able to pay its international debts. This was because the Treasury Department had let a key waiver expire, which meant that US banks and people could no longer take bond payments from the Russian government.
“This means that Russia will probably not be able to meet its obligation and will have to go into default,” White House Press Secretary Karine Jean-Pierre told reporters. “This is a lasting sign of Russia’s status as a pariah in the global financial system.”
In the meantime, Russia’s Finance Minister Anton Siluanov has said that the tightening financial grip is “made up by an unfriendly country.”