Year 1917, the Bolshevik revolution triumphed in Russia and the new government declared the debts of the Tsar of Russia as illegitimate. This was the last default that Russia has had, aware of the important consequences that following this path can have for its economy. Experts currently assume that given the current sanctions . In fact S&P Global has already downgraded the country to selective receivership after Moscow agreed to pay the debt, but only in Rubles. In addition, the United States has imposed sanctions whereby the Kremlin can no longer make payments on foreign debt denominated in the country. Fitch and Moody’s followed the same path, lowering their rating to practically the minimum and therefore a scenario other than default already seems complicated.
In fact, the Russian state railway company has already stopped paying its debt and has been considered in default by the Credit Derivatives Determination Committee (CDDC). Experts predict that this will be the first of a similar trickle by firms from all the productive sectors of the country, affected in their commercial activity and heavily burdened by sanctions when it comes to dealing with their debt.
In the latest Oxford Economics report, they warn that Russia will be declared in default once the one-month grace period on late Eurobond payments due April 4 has expired. They believe this situation is certain to occur because “the Russian government can no longer make payments on its US-denominated foreign debt as the US Treasury has stopped granting permission for such transactions to correspondent banks.” “.
Given this situation, analysts warn that an “avalanche of payment defaults by Russian companies” is coming. The reason is that “Russian corporate borrowers linked to oligarchs and sanctioned officials cannot make payments to foreign bondholders.” And due to this accumulation of factors, they conclude that this debt crisis will be one of the most difficult to resolve in history and would lead the Kremlin and national companies to lose access to the international loan market, especially at a critical time due to the high costs of war and economic crisis.
“If the conflict continues, the technical challenges for Russian companies and the state to pay bondholders will be very high”
Andrew Stanners, investment director of Abrdn also agrees “the sanctions imposed on Russia for the invasion of Ukraine risk not only causing a default in rubles, but also in foreign currencies.” The expert concludes that “this situation will leave Russia out of the financial markets and will push the country into a deep recession and a probable economic crisis.”
Although he believes that the main blow will be the avalanche of companies without access to financing, since it must be remembered that the Russian central bank has imposed sharp increases in interest rates to keep a ruble afloat that had sunk due to sanctions and is already recovering. . “There is still a long way to go to bring the Russian economy to a complete halt, especially given the complexity of cutting Europe off from its relationship with oil and gas, but there is no doubt that, if the conflict continues, the technical challenges for that Russian companies and the state pay bondholders will be very high.”
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