DD Support Board and Research Team

[BullNBear52]

Russia is now exposed to a historic debt default: Here’s what happens next
PUBLISHED WED, MAY 25 20222:58 AM EDTUPDATED WED, MAY 25 20227:41 AM EDT

Up until Wednesday, the U.S. Treasury Department had granted a key exemption to sanctions on Russia’s central bank that allowed it to process payments to bondholders in dollars through U.S. and international banks, on a case-by-case basis.
However, the Treasury Department’s Office of Foreign Assets Control has allowed the exemption to expire as of 12:01 a.m. ET on Wednesday, it was announced in a bulletin Tuesday.

...Moscow has a deluge of debt service deadlines coming up this year, the first being on Friday, when 100 million euros ($107 million) in interest is due on two bonds, one of which requires dollar, euro, pound or Swiss franc payment while the other can be serviced in rubles.

Reuters and The Wall Street Journal reported Friday that the Russian Finance Ministry had already transferred funds in order to make these payments, but a further $400 million in interest is due late in June.


....Russia has not defaulted on its foreign currency debt since the Bolshevik Revolution in 1917.

....Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said in an email Tuesday that it is only a matter of time now before Moscow defaults.

“The right move by OFAC as this move will keep Russia in default for years to come, as long as Putin remains president and/or leaves Ukraine. Russia will only be able to come out of default when OFAC allows it to. OFAC hence retains leverage,” Ash said.

“This will be humiliating for Putin who made a big thing with [Former Chancellor of Germany] Schroeder at the time Russia was last on the brink of a Paris Club default that great powers like Russia pay its debts. Russia can no longer pay its debts because of its invasion of Ukraine.”

....Ash predicted that Russia will lose most of its market access, even to China, in light of the default, since Moscow’s only financing will come at “exorbitant” rates of interest.

“It means no capital, no investment and no growth. Lower living standards, capital and brain drain. Russians will be poorer for a long time to come because of Putin.”

Ash suggested that this would further Russia’s isolation from the global economy and reduce its superpower status to a similar level to North Korea.


...Agathe Demarais, global forecasting director at the Economist Intelligence Unit, told CNBC on Friday that since Russia’s sovereign debt is low and was falling before the invasion, entering what the EIU sees as an inevitable default may not pose a huge problem for Russia.

“To me, it’s really a signal as to whether Russia thinks that all bridges have been burned with the West and financial investors. Normally if you’re a sovereign country, you do your utmost to avoid a default,” Demarais said.

....She added that the punitive sanctions against Russia from the U.S. and Western allies will likely remain in place “indefinitely,” since the Kremlin’s false characterization of the invasion as being a “denazifying” effort means it cannot easily U-turn.

....“What this really shows is this burning bridges strategy of Putin feels he has nothing to lose anymore,” Demarais added.

https://www.cnbc.com/2022/05/25/russia-is-now-exposed-to-a-historic-debt-default-heres-what-happens-next.html