First Russia Sovereign Debt Default Since 1918
(27 June 2022 – Russia) The culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors has seen Russia default on its foreign-currency sovereign debt for the first time in a century.
The country traversed penalties imposed after the Kremlin’s invasion of Ukraine for several months however by the end of Sunday 26 June the grace period on US$100 million of interest payments due a month earlier on May 27 expired. The missed deadline is considered an event of default.
Russia’s Eurobonds have traded at distressed levels since the end of Q1 2022, the Central Bank of the Russian Federation (Банк России )FX reserves remain frozen and Russian bank majors are effectively cut off from global financial markets.
The last time Russia suffered foreign creditors bond default was when the Bolsheviks under Vladimir Lenin repudiated Russia’s enormous Tsar-era debt pile in 1918.
“By some measures the Russian default totalled a trillion dollars in current monetary values in 1918 whereas by comparison now, foreigners held the equivalent of almost US$20 billion of Russia’s Eurobonds as of the start of April 2022” commented Loomis Sayles Senior Sovereign Debt Analyst and author of Bankers and Bolsheviks: International Finance and the Russian Revolution, Hassan Malik.
“It’s a very, very rare thing where a government that otherwise has the means is forced by an external government into default. It’s going to be one of the big watershed defaults in history” Malik added.