Russia denies default, blames Western financial agents

by Barbara R. Abercrombie
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The Russian Ministry of Finance has asked foreign bondholders to speak directly with those withholding payments.

Russia has rejected claims that have defaulted on its foreign debt for the first time in more than a century, telling investors to turn to Western financial agents for the money Moscow claims had been sent but bondholders failed to receive.

The White House said on Monday that Russia had defaulted on its international bonds for the first time since the Bolshevik revolution, as sweeping sanctions during Moscow’s war against Ukraine effectively cut the country off from the global financial system.

“Declarations of default are unwarranted,” Kremlin spokesman Dmitry Peskov told reporters on Monday, pointing to a forex coupon payment in May.

“That Euroclear has withheld this money and not brought it to the recipients is not our problem. ” No reason to call such a situation a standard,” he said.

Euroclear did not immediately respond to a request for comment.

Until last week, Russia continued to pay its Eurobonds in foreign currencies, but the dollar and euro coupon transfers carried out in May did not reach investors. Moscow owes $100 million in interest on one dollar-priced bond and one euro-denominated bond, originally due May 27.

Russia

On Monday, Russia’s finance ministry said that “actions by foreign financial intermediaries are beyond the control of the Russian finance ministry” and ordered foreign bondholders to speak directly with those withholding payments Moscow claims to have made.

“The non-receipt of funds by investors was not due to lack of payment, but because of the actions of third parties and what is not directly described as a default situation by issuance documentation,” the ministry added.

President Vladimir Putin last week ordered that debt obligations would be considered fulfilled once a ruble payment equal to the forex amount owed was made. Bondholders would have to open an account with a Russian bank to receive such compensation.

‘Financial atomic bomb’

The Group of Seven Major Western Powers banned transactions with Russia’s central bank and froze its assets held in their jurisdictions, worth about $300 billion after Russia invaded Ukraine in February.

Some Western politicians have called for seizing Russia’s frozen reserves to rebuild Ukraine — and it was such an idea that two senior Russian financial sources said they believed it was behind Monday’s bankruptcy announcement and that Moscow considers artificial.

“By announcing a default, they can claim that sanctions work. Economically and financially, assets can be legally confiscated,” said one of the two sources.

Kremlin spokesman Peskov reiterated Monday that the Russian reserves were being blocked “unlawfully” and that any attempt to use them “would stand on outright theft”.

“I believe that a financial atomic bomb has been used against us; no country in the history of mankind has experienced such sanctions pressure as Russia has now,” said Alexei Moiseev, Russia’s deputy finance minister, last week.

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