Russia attempted to pay in rubles for two dollar-denominated bonds that matured on April 4, S&P said in a note on Friday. The agency said this amounted to a “selective default” because investors are unlikely to be able to convert the rubles into “dollars equivalent to the originally due amounts.”
According to S&P, a selective default is declared when an entity has defaulted on a specific obligation but not its entire debt.
Moscow has a grace period of 30 days from April 4 to make the payments of capital and interest, but S&P said it does not expect it will convert them into dollars given Western sanctions that undermine its “willingness and technical abilities to honor the terms and conditions” of its obligations.
A full foreign currency default would be Russia’s first in more than a century, when Bolshevik leader Vladimir Lenin repudiated bonds issued by the Tsarist government.
Russia cannot access roughly $315 billion of its foreign currency reserves as a result of Western sanctions imposed following its invasion of Ukraine. Until last week, the United States allowed Russia to use some of its frozen assets to pay back certain investors in dollars. But the US Treasury has since blocked the country from accessing its reserves at American banks, part of its effort to ramp up pressure on Russian President Vladimir Putin and further diminish his war chest.
JPMorgan estimates that Russia had about $40 billion of foreign currency debt at the end of last year, with about half of that held by foreign investors.