Russia slips into default zone as payment deadline expires

Russia has struggled to keep up payments on $40 billion of outstanding bonds since its invasion of Ukraine

Russia looked set for its first sovereign default in decades as some bondholders said they had not received overdue interest on June 27, 2022 following the expiry of a key payment deadline a day earlier.

Russia has struggled to keep up payments on $40 billion of outstanding bonds since its invasion of Ukraine on February 24, as sweeping sanctions have effectively cut the country off from the global financial system and rendered its assets untouchable to many investors.

The Kremlin has repeatedly said there are no grounds for Russia to default but it is unable to send money to bondholders because of sanctions, accusing the West of trying to drive it into an artificial default.

Russia's efforts to avoid what would be its first major default on international bonds since the Bolshevik revolution more than a century ago hit a insurmountable roadblock in late May when the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) effectively blocked Moscow from making payments.

"Since March we thought that a Russian default is probably inevitable, and the question was just when," Dennis Hranitzky, head of sovereign litigation at law firm Quinn Emanuel, told Reuters. "OFAC has intervened to answer that question for us, and the default is now upon us."

While a formal default would be largely symbolic given Russia cannot borrow internationally at the moment and doesn't need to thanks to plentiful oil and gas export revenues, the stigma would probably raise its borrowing costs in future.

The payments in question are $100 million in interest on two bonds, one denominated in U.S. dollars and another in euros, Russia was due to pay on May 27. The payments had a grace period of 30 days, which expired on Sunday.