Russia doesn’t get a U.S. license to pay bondholders

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Russia doesn’t get a U.S. license to pay bondholders

The United States didn't extend its license to Russia Wednesday to pay bondholders, as part of sanctions against the country, edging Russia closer to debt default, according to a report.

Russia has defaulted on international sovereign bonds for the first time in more than 100 years since the Bolshevik Revolution, according to Reuters.

Russia has so far managed to pay its foreign debt obligations despite a raft of financial sanctions from the U.S. and its European allies over Moscow's license, which expired at 12 a.m. The country will have to make interest payments on sovereign debt by the end of the year, and Russia will have to pay $2 billion to international creditors before the end of the year.

Since the first rounds of sanctions, the Treasury Department has given banks a license to process dollar-denominated bond payments from Russia with a temporary exemption.

Default could keep Russia from getting back access to international credit markets, stymie trade and cause creditors to seize physical assets. A navy boat and a presidential plane were seized when Argentina defaulted in the last decade.

Russia has bond payments due on May 27 and June 24 that are collectively worth $500 million. A portion of the bond can be paid in foreign currency other than the dollar, according to the terms of its bonds.

If bondholders don't get their money when the money is due, and factoring in any grace periods that apply, Russia will default on a sovereign debt, Jay Auslander of law firm Wilk Auslander told Reuters. With the waiver gone, there seems to be no way for bondholders to get paid. Russian Foreign Minister Anton Siluanov stated earlier this month that the country has no plan to default on its $20 billion of debt that it owes to foreign investors, and pledged to pay in rubles if transfers are blocked, according to Russian state media. Siluanov previously said Moscow would take legal action if its payments are blocked.

Siluanov told the pro-Kremlin Izvestia newspaper in April that they will sue because they undertook all necessary action so that investors would receive their payments. We will show the court proof of our payments, to show the court our efforts to pay in rubles, just as we did in foreign currency. It won't be a simple process. A Russian lawmaker suggested in parliament that the country could stop making foreign debt payments because its assets abroad were frozen, according to a senior Russian lawmaker.

Treasury Secretary Janet Yellen said during a Senate Banking Committee hearing earlier this month that he was not extending the license, something that we are actively looking at right now. We want to make sure that we understand what the potential consequences would be of allowing the license to expire. Some U.S. officials claimed that allowing Russia to continue to make debt could take away from its financial war chest.

Since the invasion, credit rating agencies have stopped rating the country.

Despite Russia's risk of default, it flushes with tens of billions of dollars from energy exports, according to Reuters.