Russia faces first bankruptcy in more than a century

Russia faces its possible first bankruptcy or ‘default’ (default) in more than a century. Vladimir Putin’s government has to pay its creditors 117 million dollars for the interest on two bonds, but cannot pay as its reserves in foreign currency are blocked.

The agency of Fitch credit rating has warned that if Russia made in rubles paying your coupons debt issued in dollars“would constitute a sovereign defaultafter the 30-day grace period has elapsed.

“According to Fitch Ratings’ sovereign rating criteria, the local currency payment of Russia’s US dollar Eurobond coupons due March 16, if it were to occur, would constitute a sovereign default, upon expiration of the grace period of 30 days,” he said.

debt interest

Moscow had to face this Wednesday the payment of 117 million dollars (105 million euros) corresponding to interest on your debt and, in case of not making the payment, it will have a grace period of 30 days before being declared the ‘default’the first such event for the country since it failed to pay its ruble-denominated debt in 1998 and the first time since 1918 in which it would not pay its debt in foreign currency.

In this sense, Fitch Ratings has pointed out that if the coupon payments are not made in dollars, according to the original terms, the affected Russian issue notes would be reduced to category ‘D’ at the end of the grace period.

Last week, Fitch Ratings had lowered the solvency note as the long-term issuer of Russia’s sovereign debt to ‘C’ from ‘B’ as a reflection of the “imminent” risk of default, after the Russian government approved on March 5 a decree that could potentially force the redenomination of the sovereign debt payments in foreign currency to local currency for creditors in specific countries.

What will happen?

Once the technical ‘default’ occurs, the creditors and the country will have to negotiate. One possibility is that the terms of foreign bonds are postponed. Another alternative is to go to court, which could lead to the seizure of Russian assets. Both options are slow and have a difficult resolution. These 117 million are just the tip of the iceberg. Public and corporate debt in Russia will also be up in the air if the initial payment is not resolved. They would be ‘suspended’ $150 billion in foreign currency commitments.

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The International Monetary Fund (IMF) has also hinted at the bankruptcy of Russia and has warned that the Russian economy is already contracting and headed for a deep recession. “The Bankruptcy of Russia is no longer an unlikely event“said the managing director of the Fund, Kristalina Georgieva.

Different experts point out that Europe is not very exposed to Russia’s debt.