Moody's confirms Russia default on foreign debt

Moody's ratings agency has confirmed that Russia has defaulted on its foreign debt for the first time in a century, after bond holders did not receive $100 million in interest payments.

Following its invasion of Ukraine, a series of unprecedented Western sanctions have isolated Russia from the global financial system.

Russia lost the last avenue to service its foreign-currency loans after the United States removed an exemption last month that allowed US investors to receive Moscow's payments.

On June 27, holders of Russia's sovereign debt had not received coupon payments on two eurobonds worth $100 million by the time the 30 day grace period ends, which we consider an event of default under our definition, Moody's said.

Moscow said on Monday there were no grounds to call this situation a default, as the payments had not reached creditors due to the actions of third parties. Russian authorities insist they have the funds to honour the country's debt and accuse the West of pushing an artificial default.

Moody's warned that more defaults are likely because of the issuer comment, rather than a formal default declaration, as sanctions bar credit ratings agencies from covering Russia's sovereign debt.

The Russian government's stock of $300 billion in foreign currency reserves held abroad has been frozen because of the sanctions, making it harder for Moscow to settle its foreign debts.

Russia said it would pay debt in rubles that could be converted into foreign currency, using a Russian financial institution as a payment agent after the United States closed the last payment loophole last month.

Moody's said that it would treat payments in rubles as default for bonds that do not allow for such redenomination in the contractual terms. Also, Moody's no longer covers Russia, Kremlin spokesman Dmitry Peskov said: Does this mean Moody's restarted the ratings process? The country defaulted on its foreign debt in 1918 when the Bolshevik revolution leader Vladimir Ilich Lenin refused to recognize the massive debts of the deposed tsar's regime.

Russia defaulted on domestic debt in 1998 when it faced a financial squeeze that prevented it from propping up ruble and paying off debts that had been accumulated during the first war in Chechnya due to a drop in commodity prices.

The International Monetary Fund's number two official, Gita Gopinath, said in March that a Russian default would have little impact on the global financial system.