Russia, Default After 24 Years...? Is the 16th the First Watershed?

Source= Hanwha Securities

[Asia Economy Reporter Kim Hyunjung] Russia, which is facing stringent Western financial sanctions including expulsion from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), is increasingly likely to enter a default (debt default) state for the first time in over 24 years since 1998. The interest payment deadline for dollar bonds is approaching on the 16th, but the value of the ruble is plummeting, and the $640 billion foreign exchange reserves are frozen.

According to international credit rating agencies such as Moody's, Standard & Poor's (S&P), and Fitch on the 6th (local time), Russia, whose dollar funding has been virtually blocked in the financial market, must pay $117 million (approximately 142.9 billion KRW) in dollar bond interest by the 16th. Following that, on the 4th of next month, $2 billion worth of foreign currency bonds will mature. The total government bonds maturing by 2024 amount to about $36.14 billion. On the 3rd, Russia also failed to repay 22 billion rubles (approximately 224.4 billion KRW) in ruble-denominated government bond interest to European investors. Gazprom, Russia's largest gas company, holds bonds worth $1.3 billion maturing on the 7th.

More than 60% of Russia's foreign exchange reserves are held in accounts frozen by the United States, the European Union (EU), and the United Kingdom, and new government bond transactions are also banned, effectively blocking funding. The ruble's value has also fallen more than 30% since the war, sharply increasing the burden of foreign currency debt.

However, some analysts suggest that the risk of debt spreading in the short term is limited. This is because the foreign ownership ratio in the Russian bond market was only 19.9% at the end of last year, and the government debt-to-GDP ratio is 17.94%, which is one-tenth of the level at the time of the 1998 national default. It is also noted that 81.5% of issued bonds are ruble-denominated, and local institutions hold 64% of the total bonds.

Meanwhile, if Russia refuses to fulfill its debt obligations and does not voluntarily declare a default, international credit rating agencies will declare a default after verifying whether the debt has been serviced. Due to the high likelihood of default, rating agencies have already downgraded Russia's credit ratings significantly last week and classified Russian bonds as 'junk' status.

This content was produced with the assistance of AI translation services.