Russia Default Raises Interest On Its Future Borrowings

Russia has defaulted on its foreign bonds for the first time in more than a century, according to the White House and the credit rating firm Moody's, as broad sanctions effectively cut the country off from the global financial system, rendering its assets untouchable, Karin Strohecker, Andrea Shalal and Emily Chan reported for Reuters.

Photo Insert: Since its invasion of Ukraine on February 24, Russia has failed to meet payments on $40 billion in outstanding bonds.

A formal default would be largely symbolic given Russia cannot borrow internationally at the moment and doesn't need to thanks to plentiful oil and gas export revenues. However, the stigma would very certainly enhance its borrowing costs in the future.

With Russia's default, the international community has entered a new, more aggressive phase of its sanctions campaign against Moscow, said Adam M. Smith, a partner at Gibson Dunn in Washington.

The Kremlin, which has the funds to make payments thanks to oil and gas income, has denied the charges, accusing the West of forcing it into an artificial default.

Earlier, some bondholders complained that they had not received overdue interest on Monday, despite the fact that a critical payment deadline had passed on Sunday. Later that day, Moody's claimed the delayed coupon payment constituted a default. More coupon payment defaults are likely, Moody's analysts stated.

Since its invasion of Ukraine on February 24, Russia has failed to meet payments on $40 billion in outstanding bonds.

Russia's efforts to avoid what would be the country's first substantial default on international bonds since the Bolshevik revolution more than a century ago were thwarted in late May when the US Treasury Department's Office of Foreign Assets Control (OFAC) essentially barred Moscow from making payments.

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