Today, Russia is forced to breach contract

Tas Society quoted Bloomberg News on June 27 that Russia will face the first foreign debt defaults since a century. The money involved in the two bonds with a $ 100 million bond, which were denominated in US dollars and euros. Although Russia paid the money earlier, because of Western sanctions, these funds are unlikely to flow to the international creditors account, so they will constitute the so -called "breach of contract".

The last Russian foreign debt default was in 1918, when Lenin led Bolshevik refused to repay the huge debt of Tsarist Russia.

Debt default usually means that it is difficult for a country to borrow money, but Russia has been sanctioned before and is banned from borrowing money from the Western market. Therefore, from the perspective of the outside world, this "default" is largely just a symbol, and it will not bring too much, direct substantial impact.

Screenshot of Tas News Agency

Russia is forced to "breach contract", but it will not bring a substantial impact

This round of "breach of contract" is not that Russia does not want or is not capable of paying money.

The interest of US $ 100 million in "breach of contract" should have expired on May 27. However, because their wide limit period is 30 days, the actual maturity time is Sunday (June 26). Russia said they had fulfilled their obligations such as debt repayment. However, due to sanctions, the country is restricted to make money through the international banking system, so funds cannot flow to overseas creditors.

According to reports, Russia has sent the money to the financial service agency EUROCLEAR, and then issued it to investors. However, according to Bloomberg, the money is currently in a state of retention, and the creditors have not received it. EUROCLEAR did not disclose whether the payment was stopped, but he said, "It will abide by all (to Russia) sanctions."

Generally speaking, the statement of formal declaration of breach of contract is generally issued by rating agencies. But because of Western sanctions, rating agencies have revoked rating of Russian entities. According to bond documents, if 25%of bond holders and "breach of contract" have occurred, they can also declare Russia's "breach of contract" by themselves.

This "default" does not have a direct substantial impact. Takahide Kiuchi, an economist at Nomura Institute of Comprehensive Research Institute, said: "Announcement of breach of contract is a symbolic event. The Russian government has lost the opportunity to issue bonds for US dollars. So far, Russia has been unable to borrow from most foreign countries."

Russia: This is not a breach of contract, this is more like a farce

Since the outbreak of the Russian -Ukraine conflict, the West has continued to impose sanctions on Russia, but Russia has been avoiding the emergence of breach of contract. It once repaid 7 debts in various ways. But with the further tightening of sanctions, these channels have been cut off since mid -late May.

In early March, the US Treasury Department of Foreign Asset Control Office (OFAC) issued a temporary exemption to allow Russia to continue to pay investors. This exemption expired on May 25; The bond agency NSD implemented sanctions, cutting off the Western agency's ways to accept Russia's payment.

Russia's Minister of Finance Anton Silu Annov made it clear that such a "default" is not a real breach of contract -because they are usually because a government government refuses to repay debts or is too weak to repay because the economy is too weak. Silu Anov said Russia wanted to pay and had enough money to pay.

According to Silu Annov, there are two main reasons for foreign investors to receive the money paid by Russia. "The first is foreign infrastructure -proxy banks, settlement and liquidation systems, deposit institutions -being prohibited from starting any business related to Russia. The second is (Western countries) clearly prohibited foreign investors from accepting our payment. "

"People familiar with the matter understand that this is not a breach of contract ... the whole situation looks like a farce."

Hassan Malik, a senior sovereign analyst of the US investment management company LOOMIS Sayles & Company LP, also said, "A government that was originally a government was forced by the external government to default. This is a very, very rare thing. ","

At present, Russia still has about $ 40 billion in non -paying bonds. During the remaining time in 2022, Russia still needs to pay a total of about $ 1 billion in interest. Russia is exploring the use of rubles to avoid the emergence of breach of contract, but it will still face resistance.

On June 22, Russian President Putin signed a decree to establish temporary procedures so that Russia was able to successfully fulfill its repayment obligations while Russia is on the verge of debt defaults. According to the presidential order, the use of rubles to pay European bonds will be regarded as Russia as a performer of debt repayment and does not constitute a breach of contract. The Russian Ministry of Finance subsequently stated that it had transferred 12.51 billion rubles (about US $ 2348.5 million) to NSD to repay the interest of euro bonds expired in 2027 and 2047.

However, debt is usually paid "in the prescribed currency form within the specified time range" because debt. Therefore, Russia's use of ruble payments may not effectively prevent debt defaults.

Source: Observer.com

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