Connect with us

Latest News

Teetering on default, Russia misses $1.9 million payment, committee determines

Published

on

  • Russia fails to pay $1.9 million in accrued interest on a dollar bond.
  • Failure expected to trigger payouts potentially worth billions of dollars.
  • Sanctions on Russia have excluded it from global financial system. 

NEW YORK/LONDON: Russia’s failure to pay $1.9 million in accrued interest on a dollar bond will trigger payouts potentially worth billions of dollars, a panel of investors determined on Wednesday, as the country teeters on its first major external debt default in over a century. 

Sanctions imposed by western countries and their allies on Russia following its invasion of Ukraine on February 24, as well as countermeasures by Moscow, have all but excluded the country from the global financial system. 

The lapse last month of a key US license allowing Russia to make payments put the prospect of the country defaulting back into focus. 

A Credit Derivatives Determinations Committee (CDDC) overseeing Europe, whose members are banks and asset managers, said on its website on Wednesday that it voted “yes” to a question on whether a “failure to pay credit event” occurred with respect to Russia.

Citibank was the sole “no” vote, while 12 other members voted “yes”.

Russia’s international 2022 bond matured on April 4 and payment of principal and interest due at maturity was not made until May 2. During that period, Russia was obligated to continue to pay interest which a holder calculated at $1.9 million. 

The CDDC was then asked to determine if Russia’s non-payment constituted a failure to pay that would trigger payouts for insurance against a default, or credit default swaps (CDS).

The committee, whose members also include Goldman Sachs, Bank of America, Deutsche Bank, Elliot Management and PIMCO, agreed that the failure to pay happened on May 19 and that a request to find a resolution was submitted on May 26. Citi again voted ‘no’.

The committee will meet again on June 6 at 2pm London time (1300 GMT) to continue the process, which could move to set up an auction to determine any CDS payouts.

There are currently $2.54 billion of net notional CDS outstanding in relation to Russia, including $1.68 billion on the country itself and the remainder on the CDX.EM index, according to JPMorgan calculations.

A default for the purposes of CDS contracts “occurs once the determination committee votes for a credit event, which has now happened,” said Gabriele Foa, portfolio manager of the Global Credit Opportunities Fund at Algebris.

“Of course […] it is a very small amount, so the definition of default is very technical. If, as it seems, it is not possible for foreign investors to receive dollars starting May 25, the default will soon be more material.”

The focus for a wider default is now on a coupon payment due June 24 on a bond issued in 1998.

Russia has under $40 billion of international bonds outstanding and close to $2 billion in payments are due through year-end.

The country has the means to avoid default, with nearly $650 billion of available gold and currency reserves prior to the Ukraine invasion, which it calls a “special military operation”, and makes billions of dollars a week selling oil and gas.

Russia’s Finance Minister Anton Siluanov said last month that Moscow will service its external debt obligations in roubles if the United States blocks other options and will not call itself in default as it has the means to pay. Not all bonds allow for payment in roubles, however.

Russia has said it could extend a scheme used for its gas payments to sovereign bondholders, allowing Eurobond investors to open Russian FX and rouble accounts. The money would be channelled through Russia’s National Settlement Depository (NSD), which is not under Western sanctions.

Russian dollar-denominated bonds rose between 1 cent and 2.5 cents on Wednesday, Refinitiv data show. They are in the very distressed territory, ranging in price from 30 cents on the dollar to as low as 19 cents.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Moody’s says the IMF programme will increase Pakistan’s foreign financing.

Published

on

By

Moody’s, a reputable international rating agency, has stated that Pakistan’s chances of acquiring funding will increase as a result of the recent agreement with the International Monetary Fund (IMF), which offers dependable sources for that purpose from both friendly countries and international financial institutions.

According to a recent Moody’s analysis on Pakistan’s economy, social unrest and tensions could result from Pakistan’s ongoing inflation. The country’s economic reforms may be hampered by increased taxes and potential changes to the energy tariff, it continued.

Moody’s, on the other hand, agrees that the coalition government headed by Shehbaz Sharif of the PML-N is in danger of failing to secure an election mandate, which may potentially undermine the successful and long-lasting execution of economic reforms.

The government’s capacity to proceed with economic changes may be hampered by societal unrest and poor governance, according to Moody’s.

In order to appease the IMF by fulfilling a prerequisite for authorising a rescue package, the government raised the basic tariff on electricity, which coincided with the most recent increase in fuel prices announced on Monday. This report was released by Moody’s.

Food costs have increased in the nation, where the vast majority is experiencing an unprecedented crisis due to the high cost of living, following the government’s earlier presentation of a budget that included a large increase in income tax for the salaried classes and the implementation of GST on commodities like milk.

The most recent comments were made following Islamabad’s achievement of a staff-level agreement for a $7 billion contract that spans 37 months and is contingent upon final approval by the IMF Executive Board.

It states that Pakistan will need foreign financing totaling about $21 billion in 2024–2025 and $23 billion in 2025–2026, meaning that the country’s present $9.4 billion in reserves won’t be sufficient to cover its needs.

Therefore, according to Moody’s, Pakistan is in an alarming position with regard to its external debt, and the next three to five years will be extremely difficult for the formulation and implementation of policies.

Continue Reading

Latest News

Accepting provisional respite: Sanam Javed and family relocated to KP House

Published

on

By

Sanam Javed, the leader of the Pakistan Tehreek-e-Insaf (PTI), and her family have moved into KP Home, an Islamabad guest home.

As a result of the Islamabad High Court’s order to postpone her arrest until Thursday, Sanam Javeed is currently free.

Records of cases filed against her have also been sought by the court.

As instructed by Chief Minister Ali Amin Gandapur of KPK, the PTI leader and her family were received at the KP House. The CM communicated with Ms. Javeed’s father and husband.

Continue Reading

Latest News

Adiala Jail is visited by a NAB team to question Khan and Bushra Bibi.

Published

on

By

As per a recent Toshakhana reference, a team from the National Accountability Bureau (NAB) has reached Adiala Jail with the intention of probing PTI founder Imran Khan and his spouse PTI Bibi.

The NAB team questioning Khan and Bushra Bibi is led by deputy director Mohsin Haroon, according to jail sources.

Regarding the latest corruption reference, the pair is behind bars. Today is the third day that the NAB team has been looking into them.

They answered questions from the NAB team for more than three hours on Monday.

After the fresh reference, Khan and Bushra Bibi were placed under physical remand for eight days by Judge Muhammad Ali Warraich of the Accountability Court.

See Also: Imran Khan and Bushra Bibi are detained in NAB prison for eight days in connection with the Toshakhana case

The release of Khan and Bushra Bibi in the Iddat case was earlier ordered by District and Sessions Judge Afzal Majoka, who also postponed their sentences.

Continue Reading

Trending