war in Ukraine
S&P cuts Russia’s credit rating
The US rating agency Standard & Poor’s (S&P) has further downgraded Russia’s credit rating due to new western sanctions over the war in Ukraine. Photo: Sven Hoppe/dpa
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After the attack on Ukraine and numerous sanctions, Russia’s economic freedom of movement is dwindling. payment defaults are imminent. S&P downgrades the country.
The rating agency Standard & Poor’s (S&P) has further downgraded Russia’s creditworthiness. The credit rating drops by one grade to “CC”, as S&P announced late Thursday evening.
The rating is two notches above “payment default”. The background is the question of whether Russia can make interest payments on government bonds due to financial sanctions for the invasion of Ukraine.
S&P sees Russia’s solvency at risk. The country is “very prone to payment defaults,” judged the credit checkers. According to its own statements, Russia has at least made the most recent interest payments. It’s about $117 million in interest owed on Russian government bonds. The Russian Ministry of Finance said the payment was held by Citigroup, the bank responsible for the payment. In doing so, one has fulfilled one’s obligations.
Russia wants to pay in rubles
The matter is complicated because the Russian bonds concerned were issued in dollars and interest payments must therefore normally be made in dollars. S&P notes that a default could be declared when investors do not have access to their funds or payments are made in a currency not listed in the bond terms and the investor does not agree to the alternative payment. The Russian government has signaled that it will make interest payments in rubles if payments in US dollars are not possible due to financial sanctions.
Experts point out that such a default by Russia would be primarily of a technical nature. In principle, the country would have the means to pay interest on its national debt. However, a large part of the funds is blocked due to sanctions.
Notwithstanding this, problems can arise in payment processing, since numerous Russian banks have been excluded from the Swift international payment information system. Most experts do not see drastic consequences for the international financial system in the event of a Russian default because of Russia’s comparatively low foreign debt.