Moscow repays dollar debts in rubles via a new system

Moscow repays dollar debts in rubles via new system


Russia has made interest payments on its dollar-denominated debt in rubles, the Russian Finance Ministry announced on Thursday, due to sanctions against the country for its military intervention in Ukraine.  

“Funds for the payment of a coupon (on external bonds of the Russian Federation maturing in 2027 and 2047 in the total amount of 12.51 billion rubles (the equivalent of 234.85 million dollars) have been received by the payment agency for National Settlement Depository (NSD) Eurobonds,” the ministry said in a statement.

“Thus, the bonds (…) of the Federation of Russia are fulfilled in full by the Ministry of Finance of Russia,” the latter added.

In this press release, the ministry indicates that it is based on a new temporary payment system that came into force by a presidential decree published just before, on Wednesday, June 22.

This system provides that when a deadline arrives, the Ministry of Finance transfers the ruble equivalent of the funds to the NSD, a centralized Russian body responsible for the deposit of financial securities traded in the country.

The latter takes care of repaying creditors in rubles at the rate of the Central Bank, in order “to ensure the maximum equivalence of payments”. If the creditors are Russian, the funds are transferred “bypassing foreign intermediaries”.

But if the securities are held abroad, the funds will be transferred to special ruble accounts, a mechanism similar to that used for gas payments.

At the end of May, Russia announced that it would repay its foreign debt in roubles, no longer being able to do so in dollars because of the sanctions, despite its significant financial liquidity.

However, a repayment in a currency other than that in which a debt was denominated exposes the debtor to a default on his debt.

Since the three major international financial rating agencies no longer rate Russia, it falls to an organization bringing together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia is missing payments to its creditors.

At the beginning of June, this creditors' commission affirmed that the country had not honored the payment of interest on its debt to the tune of of $1.9 million due April 4.