Sanctions dramatically increase Russia’s international debt default risks, analysts warn

A sign outside the offices of JP Morgan Chase & Co. is seen in New York, U.S., March 29, 2021. REUTERS/Brendan McDermid

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LONDON, March 2 (Reuters) – Sanctions on Russia have significantly increased the country’s default risks on its dollar-denominated government debt and in other international markets, analysts at JPMorgan and elsewhere warned on Wednesday.

Russia has more than $700 million in government bond payments due this month. While in theory it has sufficient reserves to cover its debts, in practice a freezing of certain assets and other measures could affect its ability to make payments. Read more

“The sanction of Russian government entities by the United States, countermeasures in Russia to restrict foreign payments, and disruptions in payment chains present significant obstacles for Russia to make a bond payment abroad,” he said. JPMorgan said in a note to clients.

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“The sanctions … significantly increased the likelihood of a default on Russian government hard currency bonds.”

The central bank and finance ministry did not respond to a Reuters request for comment on the possibility of defaults.

According to JP Morgan analysts, the first critical date is March 16, when two bond coupon payments are due, although like much Russian debt these have “grace periods” of 30 days, which would push back any formal default time to April 15.

Russia has just under $40 billion in debt in the international market or “hard currency”, as it is called. Although this is a small amount for an economy the size of Russia, any missed payment will trigger a chain of events.

Major credit rating agencies like S&P Global, Moody’s and Fitch, which all had investment grade scores for Russia until last week, would downgrade it en masse.

JPMorgan estimated that some $6 billion in credit default swaps (CDS) that bondholders bought as insurance policies should also be repaid, although the process could be complicated in the event of new sanctions. debt.

The default concerns follow a warning from the Institute of International Finance (IIF) this week, which reported that about half of Russia’s $640 billion in foreign exchange reserves had effectively been frozen by international sanctions. . Read more

Capital Economics also warned on Wednesday of growing default risks. He said it would mainly hit international investors – foreigners held $20bn of Russia’s government debt denominated in dollars and rubles at the end of last year, according to Russia’s central bank – although it would also hurt more. to Moscow’s reputation in international markets.

“The likelihood that government and business will be unable or unwilling to repay foreign debt has increased dramatically,” Jackson said.

Russia’s international debt default looms
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Reporting by Marc Jones Editing by Karin Strohecker and Mark Potter

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