If a tree falls in the forest and no one is there to hear it, does it make a sound? If a debt payment is made but no one can collect it, is it still a default?
Missing interest payments due on Wednesday would have made Russia look financially weak. Propaganda therefore collided with the humdrum world of payments in manoeuvring by Anton Siluanov.
The finance minister said Russia had sent instructions to a US bank for a $117mn interest payment on two dollar-denominated bonds.
This was a clever gambit, even though it was unclear whether the transfer had gone through. It suggested Russia has plenty of dollars, despite US freezing orders on central bank foreign currency reserves. And it appeared to put the onus for the distribution of payment on US sanctions authorities.
Russia had been threatening to pay foreign debts in roubles. But Fitch Ratings and S&P Global Ratings had ruled that payments in any currency other than the dollar on the two bonds would be considered a default.
In theory creditors should still be able to get paid under US sanctions. These allow for payments until May 25. Energy heavyweights Gazprom and Rosneft both made dollar payments last week.
Russia — for all its tough talk — needs to service $38.5bn of foreign currency debt. Reneging would increase its cost of capital in markets where it can still raise money. The two sovereign bonds with coupons due rallied to 40 cents on the dollar yesterday.
The bigger question is what will happen after May 25. Russia has at least $1.4bn of interest payments due between late May and the end of 2022. Russian companies have racked up nearly $100bn in foreign currency debt, with almost half of this due for repayment over the next three years, says JPMorgan.
Russia still has a 30-day grace period to meet Wednesday’s payments. Wrangling over the precise nature of a default will continue in parallel with arguments over the success or failure of Russia’s military campaign.
