Russia Threatens Suit If It Is Forced To Default On Sovereign Debt

Russia will take legal action if the West tries to force it to default on its sovereign debt, Finance Minister Anton Siluanov told the pro-Kremlin Izvestia newspaper on Monday, sharpening Moscow's tone in its financial wrestle with the West, Lidia Kelly and Karin Strohecker reported for Reuters.

Photo Insert: Finance Minister Anton Siluanov

Russia faces its first external sovereign default in more than a century after it made arrangements to make an international bond repayment in roubles last week, even though the payment was due in US dollars.

It had been due on April 4 to make a payment of $649 million to holders of two of its sovereign bonds, but the US Treasury blocked the transfer, preventing Russia from using any of its frozen foreign currency reserves to service its debt.

Russia's external liabilities amount to about 20% of the total public debt, which stood at about 21 trillion roubles ($262 billion). Of that, about 4.5-4.7 trillion roubles were external liabilities.

Russia has not defaulted on its external debt since the aftermath of its 1917 revolution, but its bonds have now emerged as a flashpoint in its economic tussle with Western countries.

"Of course we will sue because we have taken all the necessary steps to ensure that investors receive their payments," Siluanov told the newspaper in an interview.

"We will present in court our bills confirming our efforts to pay both in foreign currency and in roubles. It will not be an easy process. We will have to very actively prove our case, despite all the difficulties."

Siluanov did not elaborate on Russia's legal options and did not say where any court hearing could happen. The bonds in question were issued under English law, which allows a borrower to defend itself by saying that an external force made it impossible to honor obligations, so the court may postpone the payment, said Mitu Gulati, professor of law at the University of Virginia.

"So I think Russia is going to argue this but ... this is a war ... caused by Russia," said Gulati, also an expert on debt restructuring, adding: "This is not a completely implausible legal argument."

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