Russian default looms as deadline for dollar bond payments arrives

Russia faced a crucial bond payment on Wednesday that could lead to the sanctions-racked country defaulting for the first time since 1998, and its first major international debt default since the Bolshevik revolution a century ago.

Moscow was due to make $117m (£89.4m) interest payments, or coupons, to investors holding two bonds denominated in dollars. But with much of its foreign exchange reserves frozen by international sanctions, it may be unable to pay.

That could pave the way to a historic default, after a 30-day grace period, that would add to the intense pressure on the Russian economy.

On Wednesday, the Russian finance minister, Anton Siluanov, said Russia had sent an order on Monday to a correspondent bank for the payment of $117m in coupons, and that authorities in the US should clarify whether it could be processed.

Moscow has said it could pay international bondholders in roubles, if it were unable to service its debts in the currencies they were issued in. It argued that this would mean it was meeting the payment.

Moscow last defaulted during the financial crisis of 1998, when it could not meet its domestic rouble debts and Soviet-era debts. However, it continued to make payments on international bonds issued after the collapse of the Soviet Union.

Until now, its only comprehensive default on foreign debt was after the 1917 revolution, when the new Soviet government repudiated the debts of the Tsarist regime.

Russia currently owes about $40bn in euro- and dollar-denominated sovereign debt, with $20bn held abroad.

Foreign banks have about $120bn in exposure to Russia, mainly in Europe, according to data from the Bank of International Settlements.

The value of Russia government bonds has plunged to distressed levels since the invasion of Ukraine, as investors have anticipated a default.

However, the bonds in question on Wednesday are not thought to include such small print.

A default could trigger Russian debt default insurance policies known as credit default swaps (CDS), taken out as protection against such an eventuality.