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

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2 years ago

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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.

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There will be no rally in Islamabad on May 9, as police warn of stern action.

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2 hours ago

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On Tuesday, police announced the federal government had implemented Section 144 in the Capital, which prohibited anyone from holding a gathering without permission.

The Capital police have warned that individuals who attempt to hold a gathering on May 9 will face severe consequences. Those who organize a protest procession without previous permission will face legal consequences. The Capital Police Department stated that such an attempt would not be permitted.

It should be noted that the PTI has organized a ‘peaceful’ demonstration in Islamabad on May 9, and has sought a judicial commission to investigate the May 9 incident.

Meanwhile, speaking to the media on Tuesday, PTI Chairman Barrister Gohar Ali Khan, along with the party’s top leaders, including Shoaib Shaheen, stated that peaceful protest was a fundamental right of any political party. They also inquired about the location of CCTV footage from the May 9 occurrences.

The Pakistan Tehreek-e-Insaf (PTI) has called for the establishment of a judicial committee to probe the events of May 9. Barrister Gohar reiterated the party’s position on the Public Accounts Committee chairman, noting that it was an internal matter that will be settled upon notification.

In response to the DG ISPR’s recent press conference, Barrister Gohar stated, “I will read the DG ISPR’s statement and then comment.”

Shoaib Shaheen emphasized claimed acts of state terrorism, such as the kidnapping of the PTI’s founder and cases like Zille Shah. He also expressed concern about CCTV camera breakdowns in critical situations.

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Hajj 2024: Pakistan’s inaugural flight, carrying 180 pilgrims, departs tomorrow

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The first Hajj flight will depart from Karachi International Airport on Thursday (tomorrow) with 180 pilgrims, Ministry of Religious Affairs officials announced on Tuesday.

According to the officials, the first flight would depart at 1:45 a.m. on Thursday. According to them, up to 180 pilgrims will fly from Karachi to Medina, while a second aircraft of 150 pilgrims would depart for the holy region at 2 a.m.

In a month-long pre-Hajj flying operation, more than 68,000 prospective pilgrims under the government’s regular Hajj scheme would be ferried to Saudi Arabia on 259 flights by multiple airlines.

Most planes would arrive in Jeddah between May 24 and June 9, with the post-Hajj flight service from Saudi Arabia to Pakistan beginning on June 20.

On the first day (Thursday), 11 aircraft carrying 2,160 pilgrims would leave Pakistani airports for Medina.

Three aircraft from Islamabad would transport up to 680 pilgrims to Medina, two flights from Karachi would carry 330 pilgrims, and three flights from Lahore would transport 670 pilgrims.

The first Hajj flights from Quetta and Sukkur are scheduled for May 11 and 27, respectively.

Pre-HAJJ Arrangements

Earlier, the Ministry of Religious Affairs and Interfaith Harmony had finalized plans for the incoming pilgrims. As a result, the pilgrims were vaccinated on April 30 because travelers must obtain the mandated immunization 10 days before their Hajj flights begin.

Pilgrims must carry smartphones with them so that they can use applications for assistance throughout their Hajj journey.

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PM expresses condolences to UAE President over Sheikh Tahnoun’s death

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2 hours ago

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Prime Minister Muhammad Shehbaz Sharif spoke by phone with President of the United Arab Emirates (UAE) Sheikh Mohamed bin Zayed Al Nahyan on Tuesday, conveying his profound condolences on the death of his beloved uncle, Sheikh Tahnoun bin Mohamed Al Nahyan.

According to a press release from the PM Office Media Wing, the prime minister prayed for the departed soul’s ultimate peace as well as patience for the Royal Family in bearing this terrible loss.

The prime minister stated that the people of Pakistan have always held the UAE Royal Family in high esteem and respect, praising the leadership of the late Sheikh Zayed bin Sultan Al Nahyan, the UAE’s founder and a close friend of Pakistan.

The UAE president thanked the prime minister for the phone conversation. Both leaders underlined their determination to strengthen bilateral relations between the two fraternal countries.

They also promised to meet soon, at a time that worked for both of them.