Russia said Wednesday it had made foreign debt payments on dollar-denominated bonds in rubles, in a new blow to efforts to avoid a sovereign default amid Western sanctions over the conflict in Ukraine.
The finance ministry said in a statement that it had been forced to repay $649.2 million to foreign debt-holders in rubles after a correspondent bank refused to execute payment instructions.
“A foreign correspondent bank refused to execute instructions for the payment” of debt on two bonds on April 4, it said.
“In order to fulfill the state debt obligations of the Russian Federation,” the finance ministry “was forced to attract a Russian financial institution to make the necessary payments.”
Russia had avoided default on its foreign currency government bonds by paying the debt in dollars with the approval of the US government. But amid growing calls for President Vladimir Putin to face a “war crime trial,” the US tightened its sanctions.
On Monday, its Treasury Department said it had blocked Russia from making debt payments using dollars held in American banks.
Last week, Russia bought back in rubles three-quarters of the bond that matured on Monday, which was worth about $2 billion.
But it said $552 million, plus the final interest payment, still needed to be paid. A coupon payment for a different bond was also due on Monday.
Credit rating agencies have indicated that payments in a currency different from the one the debt was sold in would count as a default once the grace period expired.
Russia’s debt payments that were due on Monday have a 30-day grace period and had no provision for repayment in any currency other than dollars.
The BlueBay Asset Management strategist, Timothy Ash, said Russia will be forced into a “nightmare” default on its foreign currency-denominated bonds.
The default risk carries possible lasting consequences for Russia, which now has limited access to its gold and foreign exchange reserves because about $300 billion of state assets have been frozen by Western sanctions.
If Russia fails to make any of its looming bond payments within their pre-defined timeframes, or pays in rubles where dollars, euros or another currency is specified, it will constitute a default.
While Russia is unable to access international borrowing markets because of sanctions, a default would prohibit it from accessing those markets until creditors are fully repaid and any default-related legal cases are settled.