Russia says sovereign bond payments depend on sanctions

Russia’s sovereign bond payments to non-residents will depend on sanctions imposed by the West, the country’s finance ministry said on Sunday, stoking fears of a technical default on tens of billions of dollars of eurobonds.

The ministry said it would service and pay sovereign debts in full and on time but that payments would depend on the sanctions that Western governments imposed on Russia over the invasion of Ukraine.

“The actual possibility of making such payments to non-residents will depend on the limiting measures introduced by foreign states in relation to the Russian Federation,” the finance ministry said in a statement.

The ministry said that if it is unable to make a payment because of restrictions imposed by the Russian government, then payments would be made in accordance with a presidential decree from March 5.

From now on, Russia will use roubles to make payments to residents on bonds denominated in foreign currency, the ministry added.

“Payments on such state securities of the Russian Federation denominated in foreign currency to residents will be made in the currency of the Russian Federaton in the corresponding equivalent on the date of payment,” it said.

Earlier on Sunday, Moody’s cut Russia’s credit rating to Ca, the second-lowest rung of its ratings ladder, citing central bank capital controls that are likely to restrict payments on the country’s foreign debt and lead to default.

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Moody’s said its decision was driven by “severe concerns over Russia’s willingness and ability to pay its debt obligations”.

The ratings agency said default risks had increased and that foreign bondholders are likely to recoup only part of their investment.

Moody’s and its peers Fitch and S&P Global had scored Russia at investment-grade levels of Baa3/BBB as recently as March 1. All three have since cut their ratings by several notches, sending Russia’s sovereign debt deep into so-called “junk” territory.

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