Russia Avoids First Default Crisis... Credit Rating Downgraded

Investors Receive Interest Payments in Dollars on the 17th

S&P Lowers Russia's Credit Rating from CCC- to CC, Citing Limits on Repayment Ability

Indicates Limited Default... Also Suggests Possibility of Further Downgrades

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Russia has averted a default (debt default) crisis by paying some sovereign bond interest in US dollars. However, as it revealed limitations in its repayment ability by missing the originally scheduled payment date, some credit rating agencies have downgraded Russia's sovereign credit rating once again.

According to major foreign media including Bloomberg and The Wall Street Journal (WSJ) on the 17th (local time), Russia paid interest to Russian sovereign bond investors on that day.

◆ Interest Payment Within Grace Period... Avoiding First Default Crisis = Earlier, JP Morgan Chase, Russia's foreign exchange bank, announced that it had transferred the money sent by the Russian government for sovereign bond interest payments to the paying agent Citigroup. Citigroup is known to verify these funds and then distribute them to bondholders.

On the payment day, the 16th, Russia claimed to have paid $117 million (approximately 141.6 billion KRW) in interest on two sovereign bonds in dollars, but due to Western sanctions freezing foreign currency, it was not immediately confirmed whether bondholders actually received the interest.

The United States has banned transactions between its financial institutions and the Russian central bank and treasury under sanctions against Russia, but has allowed exceptions so that Russian bondholders can receive interest payments. The US Treasury Department's Office of Foreign Assets Control (OFAC) stated that this exception is only permitted until May 25.

This development led to growing optimism about Russian bonds, with prices of some Russian sovereign bonds rising. According to credit default swap prices, the probability of Russia defaulting within this year dropped from 59% to 57%. Until last week, the default probability was as high as 80%.

Kan Nazli, an economist at asset management firm Nuveen Gorman, explained, "At present, it appears that a technical default is being ruled out, but uncertainties such as corporate debt remain."

[Image source=Yonhap News]

◆ Exposure of Repayment Ability Limits... S&P Downgrades Russia's Credit Rating to CC = On the same day, international credit rating agency Standard & Poor's (S&P) downgraded Russia's credit rating from CCC- to one notch lower at CC. According to Bloomberg's report on the 17th, S&P lowered Russia's credit rating to CC, which indicates a "limited default" status, considering that Russian sovereign bond investors did not receive interest payments on time.

In a statement, S&P said, "If investors cannot recover funds, or if payments are made in a currency not specified in the debt terms and investors do not agree to alternative payments, we may consider this a default." Brendan McKenna, a strategist at Wells Fargo in New York, explained, "This downgrade means Russia is on the brink of a default crisis," adding, "It reflects the weakening of Russia's bond repayment ability."

S&P stated that if the Russian government fails to repay debt according to the debt terms or fails to repay within the grace period, it could lower Russia's foreign currency issuer rating to "selective default." It also said it is monitoring payments on ruble-denominated bonds. Furthermore, S&P forecasted that Russia may face technical difficulties related to debt repayment going forward.

Moreover, Russia's "debt feast" is expected to continue. On the 21st of this month, $65.63 million, and between the 28th and 31st, $548.53 million in maturing sovereign bond principal and interest payments are due, followed by a $2.12938 billion sovereign bond principal and interest payment on the 4th of next month.

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