Status: 03/18/2022 12:21 p.m
Russia is said to have made timely interest payments on government debt denominated in dollars. But the complex process raises questions: does the money actually reach the creditors?
A Russian state bankruptcy has been considered a possible scenario on the financial markets for a few days. Experts and market observers believe that Russia is on the brink of default, given the Western sanctions that have rendered a large part of Russia’s foreign exchange reserves practically worthless. In addition, many Russian banks are excluded from the international payment system SWIFT.
The question was not only whether Russia could pay, but also whether there was any willingness to do so. That’s not clear: “There’s definitely an argument for Russia that says, ‘We’re keeping the money now because we can’t expect any more payments from the West in the future anyway,'” financial expert Jochen Felsenheimer of Xaia Investment told Xaia Investment tagesschau.de said.
Payments should have been made
Against this backdrop, financial market players were anxiously awaiting whether Russia would make interest payments on two $117 million in government bonds that matured on Wednesday. The Moscow Ministry of Finance announced on Thursday that it had instructed the payments to be made in dollars. According to media reports, this actually happened: The Reuters news agency, citing market participants, reports that some owners of shares in Russian dollar bonds have received the interest payments due.
The Financial Times (FT) also reported, citing people familiar with the matter, that payments had been made. The payments arrived at the US bank JPMorgan, which would have forwarded them to Citigroup. As payment agent, Citigroup is responsible for the allocation to creditors, write FT and Reuters.
Ask the Ministry of Finance
According to FT, JPMorgan previously sought approval from the US Treasury Department to ensure that forwarding the payment to Citigroup would not violate sanctions.
Apparently, Russian payments on maturing bonds are currently extremely complex: “I believe that the sanctions have banned a lot of things without really thinking about the consequences that this could have for the functioning of the financial system,” comments Arthur Brunner, bond expert at ICF Kursmakler in an interview tagesschau.de.
It looks like Russia and the US have figured out a way to let the payments flow, the FT quoted Bob Michele, market strategist at JPMorgan Asset Management. That wouldn’t come as a surprise to Brunner: “After all, there would be legal disputes if that didn’t happen. The question would then be what should happen with the money. It’s also in the interests of the USA and the West that domestic creditors of Russian government bonds are served become,” says Brunner.
In the event that payments were not made, there would still be a 30-day grace period. If the payment is made up within this period, the service would still be considered fulfilled and the state bankruptcy would be averted.