On March 30, Russia’s Finance Ministry offered to repurchase Eurobonds maturing on April 4, 2022, at 100% par value.
The ministry conditioned the offer to pay in rubles at the official Central Bank ruble rate on March 31, 2022. The official rate was 93.6960 rubles to one euro, significantly below the March 7 exchange rate of 148.3754 to one.
The offer followed earlier statements and actions by Russian officials regarding debts to certain foreign creditors for their “unfriendly actions,” i.e., sanctions:
- March 5: Putin issued Decree No. 95, directed at creditors in countries that have committed “unfriendly actions toward Russia.” The decree permits Russian debtors to pay debts of 10 million rubles or more, with rubles, at the official exchange rate of the Central Bank of Russia. The countries included in the decree were the United States, Canada, the European Union, the United Kingdom, Ukraine, Montenegro, Switzerland, Albania, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, North Macedonia, Japan, South Korea, Australia, Micronesia, New Zealand, Singapore, and Taiwan.
- March 13: Finance Minister Anton Siluanov stated to the Russian state news agency RIA Novosti that Russia would pay its debt obligations in rubles until the Western nations unfreeze its foreign reserves.
- March 17: Russia made a $117 million interest payment on two outstanding bonds requiring payment in U.S. dollars. The Russian government directed JPMorgan Chase to remit the funds to Citigroup using their dollar reserves frozen by sanctions. The U.S. Treasury allowed the transaction with the statement that payments to Americans on dollar-denominated debt could occur until midnight, May 25.
- March 30: Bloomberg News reported that Russia would use dollars to repay foreign investors in a $2 billion bond maturing on April 4. The news agency says it did not identify its source because they were not authorized to speak publicly on the matter.
Russia is due to pay $71 million and €30 million of interest in May and another $394 million in June. Concern about the country’s ability to repay its debts prompted three major credit agencies to lower their ratings. Following the European Union’s decision to ban firms from providing credit ratings to Russian firms, the three major rating agencies — S&P Global, Moody’s, and Fitch — have withdrawn all ratings. Before the ban, the agencies had rated the country’s debt as “near-junk” or “junk.”
Some on Wall Street believe that Russia may default on its debts.
In a statement to clients, JPMorgan said, “Sanctions … have significantly increased the likelihood of a Russia government hard currency bond default.”
Kristalina Georgieva, managing director of the International Monetary Fund, speculated during a CBS Face the Nation interview that a Russian default is no longer “improbable… Russia has the money to service its debt but cannot access it.”
Others see the uncertainty in the bonds as an opportunity to make a “massive post-war profit,” according to Ariel Zilber of the New York Post.
The world must wait to see if Russia will default on its debts and if financial sanctions will end the conflict. In the meantime, the war continues to rage.