Russia closes in on US debt default as key waiver expires | debt news

US banks and individuals will be barred from accepting payments on Russian government bonds after 00:01 NY time (04:01 GMT) on Wednesday.

In Bloomberg

Russia will be pushed closer to possible default after the US Treasury Department said it would let a key sanctions waiver that benefits US investors expire.

U.S. banks and individuals will be barred from accepting payments on Russian government bonds after 12:01 am New York time on Wednesday, when a permit that until now allowed cash flow ends, the Treasury said in a statement on Tuesday. market.

“OFAC will not renew the provisions” of the waiver “that expire on May 25, 2022 at 12:01 pm EDT,” the Treasury Department said in a statement released by the Office of Foreign Assets Control.

Treasury Secretary Janet Yellen said last week that it was “reasonably likely” her department would let the license expire, saying it was always a temporary measure.

The decision to continue closing the split indicates that the US would rather force Russia – under a series of punitive sanctions for its war in Ukraine – to default than allow the nation to drain its coffers for the benefit of US investors.

But while the change in US restrictions adds one more hurdle to getting bond payments to foreign investors, it remains unclear whether that will be enough to push Russia into the default line.

On the one hand, non-US bondholders can still receive the funds. And since most Russian bondholders are in Europe, there would not be enough creditors to declare a default, according to ITI Capital, one of Moscow’s biggest brokerages. The limit is usually holders of 25% of outstanding bonds.

Russia is scheduled to make about $100 million in foreign debt payments on Friday. As the loophole was expected to expire, it started transferring money last week to get ahead of the new restrictions.

Payment Calendar |  Russia has about $1 billion in coupons due by the end of 2022

If there is a payment failure, Russia will have a grace period of up to 30 days to find a solution, as it did in early May when it received money for investors at the last minute after payments were initially blocked.

In all, Russia owes about $1 billion in coupon payments through the end of 2022, but it has plenty of cash, thanks to the billions that come in weekly from its sales of oil, gas and other commodities.

Not all payments to Americans are barred after May 25th. Under a permit issued by the Treasury on April 7, US investors have until June 30 to divest from Russian financial institution Alfa-Bank AO and until July 1 to divest from diamond company Alrosa PJSC.

The ruble – already at a four-year high – was little changed by the Treasury’s announcement. The currency has performed the best overall this year, gaining around 30% against the dollar.

(Adds Treasury statement in third paragraph, time exceptions in penultimate paragraph.)

–Assisted by Carolina Wilson.

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