Russia came closer to a possible bankruptcy over its international debt on Wednesday as it paid its bondholders in rubles and said it would continue to do so as long as its foreign exchange reserves were blocked by sanctions. The United States on Monday barred Russia from paying more than $ 600 million in government debt to US debt holders from reserves held by US banks, saying Moscow had to choose between running out of dollars and going bankrupt. Russia has not defaulted on its foreign debt since it refused to pay the debts owed after the 1917 Bolshevik revolution. “This accelerates the timing when Russia runs out of space for willingness and solvency,” said a fund manager who holds one of the bonds due Monday. The Kremlin has said it will continue to pay its debts. “Russia has all the necessary resources to service its debts. If this blockade continues and the payments aimed at servicing the debts are blocked, [future payment] “It could be made in rubles,” said Kremlin spokesman Dmitry Peshkov. With a total of 15 international bonds with a nominal value of about US $ 40 billion, Moscow managed to make some foreign currency payments on its Eurobonds before the United States stopped such transactions. Russia’s finance ministry said on Wednesday it had to pay rubles to its Eurobond holders in dollars expiring in 2022 and 2042 after a foreign bank refused to process a $ 649 million payment order to its public debt holders. The finance ministry said the foreign bank, which it did not name, had rejected an order from Russia to pay coupons for the two bonds and also failed to pay a Eurobond ending in 2022. Russia’s ability to meet its debt obligations has been at the forefront of sweeping sanctions in response to what Moscow calls a “special military operation” in Ukraine, with almost half of its reserves frozen and limited access to global payment systems. JP Morgan, which was processing payments on Russian government bonds as a correspondent bank, prevented the US Treasury Department from making the two payments, which expired on Monday, a source familiar with the situation said. JP Morgan declined to comment. Russia may consider allowing foreign holders of 2022 and 2042 Eurobonds to convert ruble payments into foreign currency once access to foreign currency accounts is restored, the finance ministry said. Until then, an equivalent ruble for Eurobond payments addressed to bondholders from so-called unfriendly states will be kept in special “C” accounts in Russia’s National Settlement Depository, the ministry added. Russia has a grace period of 30 days to make the payment of the dollar, but if the cash does not appear in the bondholders’ account within this time frame, it would be bankrupt, the global rating agencies said. Russia has rejected this as a default. “In theory, a state of default could be created, but that would be a purely artificial state,” Peshkov said. “There is no reason for real bankruptcy.” Bondholders have been monitoring bond payments since sweeping sanctions and countermeasures were imposed by Moscow, which has cut Russia off from the global financial system. Russia on Wednesday issued coupons on four ruble bonds of the OFZ government. They were once popular for their high returns on foreign investors, who can no longer receive payments as a result of sanctions and Russian retaliation. Be smart with your money. Receive the latest investment information delivered directly to your inbox three times a week with the Globe Investor newsletter. Register today.
