• By The Financial District

Russia Makes Early Debt Payment, Dodges Default

Russia rushed forward two payments on its international debt on Friday in its latest attempt to stave off a default that has looked to be on the cards since its invasion of Ukraine, Karin Strohecker reported for Reuters.

Photo Insert: Ministry of Finance, Russia

A week before the interest payments are due and just five days before a key US waiver allowing such transfers expires, Russia's finance ministry said it had wired $71.25 million for a dollar-denominated bond and 26.5 million euros ($28 million) for euro-denominated notes.

Russia has faced the prospect of sovereign default since Western capitals imposed sweeping sanctions in the wake of its invasion of Ukraine on Feb. 24. The country has been all but cut off from the global financial system and has seen roughly half of its $640 billion reserves abroad frozen.

Russia, which has retaliated with some countermeasures of its own, has been able to keep paying until now because of a special license from the US Treasury, which allows international bondholders to receive these kinds of payments.

That exemption is due to run out on May 25, however, and US Treasury Secretary Janet Yellen signaled this week that it won't be extended.

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"They are kicking the can down the road," said Kaan Nazli at asset managers Neuberger Berman, who holds some Russian sovereign bonds. The country's $40 billion of international bonds, around half of which are held by foreign investors, have emerged as a flashpoint in recent months.

While Russia initially seemed keen to withhold payments to foreign investors unless it was allowed to make use of its frozen reserves abroad, this seems to have changed.

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"The strategy turned into Russia not wanting to be the party to blame for the default," said Nazli. According to the finance ministry, Russia's national settlement depository - which acts as a payment agent on the two bonds - had received the funds.

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