Photo: The Canadian Press
Russian President Vladimir Putin addresses a meeting of the leaders of the Collective Security Treaty Organization (CSTO) in the Moscow Kremlin, Russia, on Monday, May 16, 2022. THE CANADIAN PRESS / Alexander Nemenov / Pool Photo via AP
The United States will close the last road on Wednesday for Russia to pay its billions in debt to international investors, making Russian default on its debts for the first time since the Bolshevik revolution virtually inevitable.
The Treasury Department said in a statement that it has no plans to renew the license to allow Russia to continue paying its debts through US banks.
Since the first rounds of sanctions, the Treasury Department has given banks a license to process any payment of Russian bonds. This window expires at midnight on May 25th.
There were already indications that the Biden administration was unwilling to extend the deadline. At a press conference at the Group of Seven Finance Minister’s meeting in Koenigswinter, Germany, last week, Treasury Secretary Janet Yellen said the window existed “to allow a period of time for it to occur. an orderly transition and so that investors can sell securities ”.
“The expectation was that it would be limited in time,” Yellen said.
Without a license to use US banks to pay off its debts, Russia would not be able to pay its international investors in bonds. The Kremlin has been using JPMorgan Chase and Citigroup as conduct to pay off its obligations.
Jay Auslander, a prominent sovereign debt lawyer who has previously litigated other debt crises such as Argentina’s, said that at this time most institutional investors in Russian debt have probably sold their holdings, knowing that it is approaching. this term. Those who still hold their debts are distressed debt investors or are willing to wait to litigate it for years to come.
“It simply came to our notice then. The only problem is finding buyers, “he said.
The Kremlin seems to have predicted the likelihood that the US would not allow Russia to continue to pay its bonds. Russia’s Ministry of Finance on Friday prepaid two bonds that were due this month to advance to the May 25 deadline.
The next payments Russia will have to make on its debts expire on June 23. Like other Russian debts, these bonds have a 30-day grace period, which would cause Russia to declare default in late July, except in the unlikely scenario that the war between Russia and Ukraine would end sooner. of that.
Investors are almost certain that Russia will default by default. Insurance contracts covering Russian debt have an 80% probability of default for weeks and rating agencies such as Standard & Poor’s and Moody’s have placed the country’s debt in scrap territory.
Russia has not defaulted on its international debts since the 1917 Revolution, when the Russian Empire collapsed and the Soviet Union was created. Russia defaulted on its domestic debt in the late 1990s during the Asian financial crisis, but was able to recover from the default with the help of international aid.