Russian Finance Ministry Dismisses Media Reports on 'Default', Says Payments Made in Full

Earlier, Bloomberg reported that Russia had technically defaulted on its foreign currency obligations for the first time since 1918, when the fledgling Bolshevik government repudiated all the sovereign debt and other financial obligations accrued by its predecessors.

Russia's Finance Ministry has dismissed Bloomberg's reporting on the country's "defaulting" on its foreign obligations, assuring that payments have been made in full and in accordance with the terms under which the eurobonds were issued.

"On May 20, 2022, the Russian Ministry of Finance made payments on bonds maturing in 2026 in the amount of 71.25 million USD and those maturing in 2036 in the amount of 26.5 million euros. These payments were received the same day by the eurobonds' payment agent, JSC National Settlement Depository and timely transferred both to Russian holders of the eurobonds, whose rights were accounted by Russian accounting infrastructure, and to foreign financial intermediaries, including through the Euroclear settlement system, for subsequent transfer to the clients of the specified organization," the ministry explained in a statement Monday.

"Thus, the obligations to service Russian securities were fulfilled by the Russian Ministry of Finance in full in accordance with the issuance documentation for the Eurobonds. However, international settlement and clearing systems, having received the funds in advance and in full, having the legal...and financial ability...to transfer said funds to their final recipients, have not taken the necessary steps to do so," the ministry stressed.

Emphasizing that the actions of foreign financial intermediaries were beyond its ability to control, the ministry urged foreign bondholders to appeal directly to those institutions which have blocked the payments.

The ministry emphasized that Russia, for its part, not only made the bond payments in advance, and that the actions of third parties (in this case Western intermediaries) are "not expressly provided for in the issuance documentation as a default event, and should be considered within the framework of the general rules of law governing the terms of the issuance, taking into account all circumstances and the good faith of the actions of parties."

Moscow, the Finance Ministry stressed, "does not refuse to fulfill its debt obligations to all categories of investors," and in the absence of the technical capability to pay in foreign currencies, has offered a new settlement mechanism, in accordance with the presidential decree signed on June 22, 2022, under which debt can be paid out in rubles.

Sputnik covered Russian business media reporting on the possibility of ruble payments last month, pointing to built-in options for such payments on all bonds issued since 2018 in the event that dollar payments were somehow made impossible, as well as a 'Currency Indemnity' clause which similarly opened the door for ruble payments to be made for older debt.

The ministry's statement follows the publication of a story by Bloomberg earlier Monday obnoxiously entitled "Russia Defaults on Foreign Debt for First Time Since 1918," with the piece suggesting that the "default" was a "grim marker" of Russia's "rapid transformation into an economic, financial and political outcast" amid Western sanctions' success in shutting down payment routes to overseas creditors.

Bloomberg characterized the "default" as largely "symbolic," given the Russian state's fiscal health, comparatively low debt levels, and absence of a cash flow problem. The estimated $100 million in interest trapped in foreign settlement systems is peanuts compared to the figures involved in the August 1998 financial crisis, when the broke Yeltsin government defaulted on $40 billion in local debts and declared a moratorium on the repayment of foreign debts.

Last week, Russian finance minister Anton Siluanov dismissed the current situation as a "farce," telling Sputnik that it does not constitute a genuine default, which ordinarily comes about due to a country's inability or unwillingness to pay.

"Anyone can declare whatever they like. But anyone who understands what's going on knows that this is in no way a default," Siluanov said.

Russia has more than $30 billion worth of dollar-denominated sovereign bonds on the market, a drop in the bucket compared to the over $300 billion in reserve assets illegally frozen in Western banks which the US and its allies have threatened to seize.

The June 22 presidential decree on ruble payments is the second time this year that the national currency is expected to get Russia out of a financial jam. In March, a decree requiring countries which have slapped sanctions on Moscow to pay for gas in rubles reversed the currency's dramatic slide against foreign currencies, with Bloomberg subsequently hailing the ruble as the world's "best-performing currency" of 2022.