Russia on brink of first default since Bolshevik revolution

RUSSIA is on the cusp of its first foreign debt default in a century after the US cut the Kremlin off from paying its bondholders.

An exemption allowing Russia to meet its obligations to international creditors will lapse today, just two days before Moscow is due to make a tranche of payments.

The Office for Foreign Assets Control said it “will not renew” the provisions, which were brought in as part of the West’s financial salvo against Vladimir Putin in late February.

The clock is now ticking on an international default, which would be the first since the aftermath of the Bolshevik revolution. Russia is due to make coupon payment on several bonds on Friday, but the bulk of the owners are said to be based outside the US, meaning a settlement may still be possible unless European banks stop the transactions out of fear of US reprisals.

A further tranche, on bonds that are predominantly Us-held, is due next month. If that payment is rendered impossible, Moscow will enter a 30-day grace period, after which it would likely be deemed to have defaulted.

Timothy Ash, an emerging markets strategist at Bluebay Asset Management, said it is now “only a matter of time” before Russia defaults. That outcome would further knock confidence in Russia’s status as a borrower, but will also leave international investors who bought bonds out of pocket by billions of dollars.

“Russia will lose almost all market access – even to the Chinese – because of this default,” said Mr Ash. “It will mean no financing for Russia [and Russian companies] except at exorbitant rates of interest. It means no capital, no investment and no growth.”