Some Russia Bondholders Say They Got Coupon Payment in Dollars
- Bondholders are based in U.S., Germany, and the U.K.
- Russia transferred dollars to make Eurobond coupon payments
Some holders of Russia’s two Eurobonds with coupons due this week said they received payment in dollars, a relief to investors who feared the nation would resort to settling the debt in rubles.
The bondholders say they were notified of the credit on their accounts on Friday, declining to be identified because they aren’t authorized to speak publicly about the matter. The $117 million interest payments on two dollar bonds were due on Wednesday.
By paying the bond coupons in dollars, Russia addresses concerns that it would fail to honor its debt obligations after its invasion of Ukraine left it severed from global financial markets, at least for now. Investors had been bracing for a payment in rubles to local accounts in Russia after President Vladimir Putin decreed that borrowers can pay all their debts in that currency, particularly to lenders in nations that imposed sanctions on Moscow. The bondholders that received coupon payments in dollars are based in the U.S., Germany, and the U.K., countries Russia deems hostile.
“They were already paid with some delay which is not a very good sign, but we have numerous more coupon payments and redemptions coming due in the rest of the year and over the next 12 to 18 months,” said Cristian Maggio, head of portfolio strategy at Toronto Dominion Bank in London said in an interview with Bloomberg Television earlier on Friday. “The market will be holding its breath for quite some time every time these payments come due.”
Russian Finance Minister Anton Siluanov reiterated this week that the nation would resort to settling the payment in rubles if a dollar transfer fails. If Russia had paid in its local currency, rating companies including Fitch Ratings said bondholders would have had the right to call a default after the 30-day grace period was up.
The wider market interest in every step of the payment process for the coupons exemplifies just how complicated Russia’s relationship has become with global investors. In the weeks since it invaded Ukraine, the energy-rich nation has become the world’s most sanctioned and saw its credit grade sink well into junk on expectations of a default -- if not on the bond coupons due this week, then possibly later. It’s now the only nation in the world with a C rating at Fitch, one notch above default, according to data compiled by Bloomberg.
“I can’t remember a time when there has been more uncertainty over a sovereign -- the Argentina default back in 2001 was messy but predictable,” said Gary Kirk, a portfolio manager at TwentyFour Asset Management. “This is far more difficult due to the global sanctions.”
EXPLAINER: Will Russian Bonds Default? There’s Debate About That
— With assistance by Irene Garcia Perez, Giulia Morpurgo, Donal Griffin, Abhinav Ramnarayan, Selcuk Gokoluk, Rebecca Choong Wilkins, Catherine Bosley, Ruth Carson, Laura Benitez, Saleha Mohsin, Netty Idayu Ismail, Lyubov Pronina, Jennifer Surane, Hannah Levitt, and Tom Metcalf
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