Russia set to avoid default as creditors secure bond payment – sources

A view shows Russian ruble coins in this illustration taken October 26, 2018. REUTERS/Maxim Shemetov

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  • Russia was due to pay some $650 million on April 4
  • The grace period for payment was due to expire this week
  • Attention shifts to upcoming Eurobond payments due May 27
  • US license authorizing debt payment expires May 25

LONDON, May 3 (Reuters) – Russia was poised to avoid a default after late payments on two of its sovereign Eurobonds were sent to creditors, four sources told Reuters.

A source familiar with the payment process and speaking on condition of anonymity said on Tuesday that the funds had been transferred to some bondholders the day before. Two creditors holding the bonds confirmed that the money appeared in their accounts.

A senior US official confirmed on Monday that Moscow had made the payment without using frozen reserves in the United States, adding that the exact source of the funds was unclear. Read more

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Last week, Russia made what appeared to be a late U-turn to avoid a default, announcing that it had paid nearly $650 million it owed in coupons and principal to bondholders. , before the expiration of the grace period on May 4.

Russia’s $40 billion in international bonds are at the center of a financial standoff between Western capitals, which imposed sweeping sanctions following the country’s invasion of Ukraine, and Moscow, which introduced countermeasures.

This complicated payments on sovereign and corporate bonds, with several companies and public entities, such as Russian Railways, not making it on time. Read more

The latest payments were made after Russia’s attempt in early April to transfer funds to international holders from its locked-in reserves. This was stopped by US authorities.

Moscow then transferred the amount owed in rubles to onshore accounts, saying it considered its obligations fulfilled. However, foreign investors were unable to access the money due to Russian capital controls.

Given the specified terms, payments must be made in US dollars, this decision was widely seen as a default.

Russia’s payments due April 4 cover a bond that matured that day, as well as interest payments on a bond due in 2042.

He now has to pay coupons on May 27 on a dollar-denominated bond issued in 2016 and a euro-denominated bond issued in 2021.

This comes due after the May 25 expiration of a temporary license issued by the US Office of Foreign Assets Control (OFAC), which authorizes transactions related to Russian sovereign debt payments.

“The clear case for this expiration to be extended is that Russia has now agreed to use assets not yet frozen to make Eurobond debt repayments, thereby draining its resources, which we believe would be viewed positively by the US Treasury,” said Simon Waever, strategist at Morgan Stanley.

“At the same time, the amounts are not significant when measured against monthly currency inflows to Russia, largely due to energy exports still ongoing,” he told Reuters. his clients.

Waever estimates that $1.5 billion is due in payments on sovereign Eurobonds by the end of the year and says Russia’s decision to pay its creditors in dollars implies it wants to avoid default of payment.

The US Treasury did not say whether that deadline would be extended. Read more

The 2022 bond rose about 50 points on Friday after Moscow’s announcement, Morgan Stanley said, while other Russian international bonds gained between 6 and 11 points.

Preparations for an auction to settle insurance against a Russian default took place last week, even after the announcement of the payments. The Credit Derivatives Determinations Committee met again on Tuesday and, after acknowledging new information that cash had reached some bondholders, said it would “defer publication of a list initial deliverable obligations”.

The case, aimed at determining whether Russia had defaulted, is still pending according to the committee’s website.

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Reporting by Karin Strohecker and Sujata Rao in London, additional reporting by Marc Jones in London and Rodrigo Campos in New York; Editing by Huw Jones, Ed Osmond, Alexander Smith and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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Elaine R. Knight