Over the weekend, Finance Minister Anton Siluanov said Western sanctions were an attempt to “artificially create an anthropogenic bankruptcy” – Moscow’s first since 1998. Siluanov, who has already sought to convert some dollar repayments into rubles, did not said who the government can sue or in which country. But bondholders and rating agencies assume that a default process is under way, and academics say the country’s efforts to be seen as willing to make payments are political rather than practical. “Paying against expectations is an upward political move that is rather cheap,” said Anna Gelpern, a law professor at Georgetown University and a senior fellow at the Peterson Institute for International Economics. “If all its essence [the invasion of Ukraine] is partly about promoting “we are a world power, respect us”, then this kind of payment theater is very important for [President Vladimir] Putin. “ Moscow has already lost payments on two of its dollar-denominated bonds after US authorities barred US banks from processing cash as part of measures to punish the country for invading Ukraine. It is not clear what role any Russian legal action may have in the default process. “If we do not receive our dollars after 30 days, it is a bankruptcy,” said a European investor holding Russian dollar bonds, referring to the grace period following scheduled voucher and capital payments last week. S&P Global has already downgraded Russia’s credit rating to “selective bankruptcy,” saying it does not expect investors to receive dollar payments within the 30-day window. Meanwhile, a committee setting up payments on derivative contracts on Monday ruled that Russia’s state-owned Railways had defaulted after interest payments did not reach investors within a 10-day grace period, despite the company’s efforts to pay its cash. last month. Russian foreign currency bonds – like those of many government borrowers – are governed by English law. Unusually, however, on the terms of the bonds, Russia has said it will not bow to a foreign court. The legal ambiguity surrounding the bonds means the Kremlin could possibly initiate legal proceedings at home, according to Mitu Gulati, a law professor at the University of Virginia, who described Russia’s argument that it has been prevented from making payments by American authorities as “not crazy. “. “As soon as they get into controversy they will say ‘look, we want to pay, we just can’t, someone is stopping us,’” Gulati said. “But here’s the rub: it’s usually supposed to be some kind of exogenous event for both parties [that is preventing payment] while investors would argue that this is not true. You caused this, they could say. If you do not invade countries, then you do not have this situation. “Leave Ukraine and you can pay.” In any case, a court in the United Kingdom would be very unlikely to postpone a Russian court ruling on whether the bonds were broken, Gulati added. Both Gulati and Gelpern likened Russia’s situation to that of Argentina in 2014, when a New York judge barred Buenos Aires from making payments to new debtors until it repaid older creditors, effectively forcing the country into bankruptcy.

Countries usually try to avoid bankruptcy to eventually facilitate the sale of new debt as soon as the pressure on public finances has eased, perhaps through a restructuring agreement with creditors. Strict sanctions against Russia, however, leave little room for any negotiation with bondholders or for Moscow to regain access to bond markets in the near future. “This is not like a normal bankruptcy,” said one investor. “As far as I know, no one is talking about setting up bond groups and talks with the Russians. “I do not even think it would be legal.” Siluanov also said that Russia has no plans to borrow in 2022. “We do not plan to enter the domestic market or foreign markets this year. That does not make sense, because the cost of such borrowing would be cosmopolitan. “ Russian bond prices have collapsed since the invasion of Ukraine, with bonds currently trading at about 22 cents on the dollar, a level that implies bankruptcy. At the end of the 30-day grace period, bondholders can “speed up” repayment by requiring them to get their money back immediately if 25 percent of a particular bondholder votes in favor. Such a decision is likely to depend on whether investors believe they can seize any of Russia’s assets abroad to enforce their claims – an exercise complicated by the fact that Russian assets have been largely frozen. because of sanctions – said Gelpern. “The current environment is so incredibly confusing that bondholders may not want to play a big card without a clear game plan,” Gelpern said. “But then it is a bit optimistic to expect a political negotiation [between bondholders and Moscow] “It will follow soon,” he added, “so some may want to speed up if they think they can get some assets.”