Russia has one day to pay $650m in foreign bonds

Payment had not yet been received by at least one of the clearing houses as of Monday afternoon in Europe

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(Bloomberg) – Russia has just over a day to secure payments on two foreign bonds from investors and avoid default in a closely watched sanctions fight.

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A grace period to transfer $650 million in coupon and principal payments expires May 4 after the funds were initially frozen in early April. Russia’s first foreign debt default in more than a century had seemed all but certain until the shock announcement late last week by the Russian Finance Ministry that the money was finally on the way. to circulate in the financial system.

However, the dollars have yet to pass the final stages. The payment had not yet been received by at least one of the clearing houses as of Monday afternoon in Europe, according to a person familiar with the matter who asked not to be named because she is not authorized to discuss it publicly.

The complications are the result of far-reaching financial and economic sanctions imposed on Russia after its invasion of Ukraine. They include sanctions against some of the country’s biggest lenders, asset seizures and a freeze on the country’s foreign exchange reserves.

The countdown to default began when JPMorgan Chase & Co. halted payments on bonds under US Treasury orders. Russia tried to sidestep the issue by paying in rubles, but rating agencies called it a breach of bond terms as the 30-day grace period elapsed.

Then, with days to go, Russia dipped into its domestic dollar holdings and announced on Friday that it had transferred the money to its foreign paying agent. This aligns with the goals of the US Treasury, which authorizes the transfer because it forces Russia to disburse local reserves that could otherwise have been used to finance the war effort.

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The funds cover the repayment of a bond maturing in 2022 and a coupon on a maturity in 2042. If the money reaches bondholders, Russia will avoid its first foreign currency default since the coming to power of the Bolsheviks and the repudiation of the loans of the tsars in 1918.

This can be a temporary respite.

US sanctions currently include a broad exemption for sovereign bond payments. That expires May 25, and the Treasury’s Office of Foreign Assets Control has not said whether it will be extended. If not, this raises a major hurdle for payments due days later for interest due on dollar and euro sovereign notes.

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