Russia threatens lawsuits amidst default on foreign debt

Russia has defaulted on its foreign debt because it offered bondholders rubles instead of dollars as payment, said credit rating agency Standard & Poor’s (S&P) on Friday.

Russia tried to pay two dollar-denominated bonds of $649 million that matured on April 4 but was unable to. According to S&P, this could lead to a “selective default” because investors cannot receive “dollars equivalent to the original due amounts.”

A selective default is when an entity defaults on a particular obligation but not the whole debt, reported the agency, quoted by CNN.

The Kremlin has a grace period of 30 days starting from the payment date to make the payments. However, S&P does not believe that Russia has the ability to turn rubles into dollars, given the current sanctions imposed by the West.

Until last week, the U.S. allowed Russia to use some frozen assets to pay back investors in dollars. Moscow ordered that around $117 million of its frozen foreign assets be used to pay investors and avoid defaulting on debt. 

However, the U.S. treasury tightened sanctions and prevented the Kremlin from accessing its reserves at American banks in response to Russia’s continued aggression in Ukraine. Russia has around $315 billion in foreign currency reserves. 

At the end of 2021, Russia had around $40 billion of foreign debt, JPMorgan estimated. 

Russia’s Finance Minister Anton Siluanov said that the Kremlin will take legal action if the West forces the country to default on its debt, reported Reuters.

"Of course we will sue, because we have taken all the necessary steps to ensure that investors receive their payments," Siluanov told the pro-Kremlin Izvestia newspaper in an interview. 

"We will present in court our bills confirming our efforts to pay both in foreign currency and in roubles. It will not be an easy process. We will have to very actively prove our case, despite all the difficulties."

Siluanov did not specify the legal options that Russia was considering or when they would take such an action.