Russia’s economy is fraying, its currency has collapsed, and its debt is junk. Next up is a potential default that could cost investors billions and shut the country out of most funding markets.
Warning lights are flashing as the government kickstarts the process of paying US$117 million in interest on dollar bonds Wednesday, a key moment for debt holders who’ve already seen the value of their investments plunge since Russia invaded Ukraine last month.
The government says that all debt will be serviced, though it will happen in rubles as long as sanctions — imposed because of the war — don’t allow dollar settlements. Failure to pay, or paying in local currency instead of dollars, would start the clock ticking on a potential wave of defaults on about US$150 billion in foreign-currency debt owed by both the government and Russian companies including Gazprom, Lukoil and Sberbank.
Such an event will revive memories of previous crises, including Russia in 1998, when it defaulted on some ruble-denominated debt, and Argentina three years later.
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