Ratings agency Fitch warns about the threat of Russia’s default

The intention of the Russian Federation to pay off its obligations in rubles may lead to its default, Fitch warns.

On March 16, the Russian Federation must pay the coupon debt on two issues of dollar bonds – 117 million dollars, or 106 million euros. Their maturity dates are in 2023 and 2043. If it does this in rubles, then after the 30-day period, Fitch will declare a sovereign default of the Russian Federation on obligations. IN agency statement says:

“We believe that the March 5, 2022 Russian presidential decree amid an escalating sanctions regime could create insurmountable obstacles to the ability of many corporations to make timely payments on foreign and local currency debt to certain international creditors. While the practical implementation of this decree remains unclear, Fitch believes that the sharply increased risk is best reflected in the definition of the ‘CC’ rating: “A default of some sort seems likely.”

Against the background of the war in Ukraine and in the conditions of the freezing of part of the foreign exchange reserves due to Western sanctions, Russia announced its desire to carry out settlements in the national currency – rubles. However, she risks, by April 16 (30 days after the due date), in this case, a default may be declared, writes dw.It may be the first of this magnitude, reports Reuters, after 1917 – the Bolsheviks then refused to pay the royal debts.

The bonds, on which the Russian Federation must make payment, were issued in 2013 and are subject to coverage in US dollars. Citi Bank acts as an agent for payments on them. On the evening of March 14, the Ministry of Finance of the Russian Federation announced that it had sent an instruction to the paying agent bank to pay investors coupon income on two bond issues on March 15, writes RIA News.

Despite the existing threat, the IMF considers it unlikely that there is now the possibility of other serious consequences for the financial system of the Russian Federation, in the event of a default on debt obligations.

Meanwhile, BLOOMBERG, according to RIA Novosti, referring to a representative of the US Treasury, reports that sanctions against the Russian Federation do not prevent it from servicing sovereign debt in dollars. At least until the end of May.

Many rating agencies have already downgraded Russia’s creditworthiness to “junk” level. The European Union has banned leading agencies from evaluating Russian bonds and companies. Many investors, when making decisions about investments, are guided by the estimates of rating companies in order to better predict possible losses. According to Brussels, this step will further increase the economic pressure on the Kremlin.



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