Russian bonds rally on signs Moscow will avoid first default since 1998

Russian bonds prolonged their latest rally on Friday as buyers guess Moscow had succeeded in making curiosity funds on its greenback debt this week, staving off the nation’s first sovereign default since 1998.

The positive aspects got here after JPMorgan processed the $117mn in coupon funds that had been due on two bonds on Wednesday, passing the cash to cost agent Citigroup for distribution to buyers, in response to an individual acquainted with the scenario. JPMorgan made the choice to course of the cost after consulting with US authorities, the individual added.

The 2 bonds, which mature in 2023 and 2043, traded at about 50 cents on the greenback on Friday — up from roughly 20 cents every week in the past — with the remainder of Russia’s $38.5bn of international foreign money debt climbing to related ranges. Whereas the bonds proceed to commerce at distressed ranges, buyers have reassessed a market that was priced for speedy default.

“The Russian authorities has demonstrated a really robust willingness to pay,” mentioned Marcelo Assalin, head of rising market debt at William Blair. “They clearly didn’t wish to be labelled a defaulter. The query is how lengthy they are going to be allowed to proceed.”

The Russian finance ministry mentioned on Friday that Citi had acquired the funds to make the coupon funds. “Thus, the ministry has honoured obligations to service authorities securities in full in accordance with the issuance documentation for eurobond points,” it mentioned, in response to Russian information company Interfax.

Citi and JPMorgan declined to remark.

One European investor mentioned on Friday morning that that they had not but acquired the curiosity cost, however anticipated it to reach. Russia has a 30-day grace interval from Wednesday to make the cost and keep away from defaulting. US sanctions limit buyers from buying and selling Russian bonds issued after March 1, however they’re nonetheless allowed to commerce any that have been bought earlier than that date.

Regardless of the obvious progress in direction of making Wednesday’s coupon funds, ranking company S&P International downgraded Russia’s credit standing to double C late on Thursday, citing “reported difficulties assembly debt-service funds on the due date”.

“We expect that debt service funds on Russia’s eurobonds due within the subsequent few weeks could face related technical difficulties,” S&P mentioned, including that an exemption in US sanctions that enables US buyers to obtain curiosity cost from Russia expires on Might 25, complicating additional debt service after that date.

Russia owes an extra $615mn in curiosity funds this month, together with $66mn on Monday, and faces a $2bn bond compensation on April 4.

Monday’s coupon is on a bond whose phrases include a “fallback” clause permitting compensation in roubles if Russia is unable to pay in {dollars}. Russia’s finance minister Anton Siluanov mentioned earlier within the week that it could be “completely honest” to make repayments in roubles till western sanctions freezing the belongings of Russia’s central financial institution are lifted, resulting in issues that Moscow would try and make Wednesday’s funds within the Russian foreign money.