Russia edges closer to averting default as JPMorgan processes bond payment

JPMorgan has processed interest payments sent by the Russian government for two of the country’s bonds, boosting investor expectations that Moscow will avoid defaulting on its debt for the first time since 1998.

The Wall Street bank has passed the $117mn in coupon payments to Citigroup, the payment agent responsible for distributing the money to investors, a person familiar with the matter said.

JPMorgan sought approval from the US Treasury department before sending the funds to Citi to ensure that it was not contravening US sanctions, the person added.

The interest payments for the two bonds were due on Wednesday, but Moscow has a 30-day grace period to make good on its obligations. JPMorgan and Citi declined to comment.

Russian bonds rallied on Thursday as investors grew increasingly confident that Moscow will continue to service its external debt, for the time being at least, confounding earlier expectations that western sanctions against Moscow would prevent the money from arriving and trigger a default on Russia’s $38.5bn of foreign debt.

The price of a dollar bond maturing in 2043 climbed to 47 cents on the dollar from 38 cents on Wednesday and as little as 20 cents a week ago.

“It feels like Russia [is] willing to make payment, and the US [is] at least creating an avenue for those payments to be received,” said Bob Michele, chief investment officer at JPMorgan Asset Management, a separate division of the US bank.

One European investor who holds both the bonds paying a coupon said they now expected the money to arrive, although the payment had not yet hit the company’s account.

“It’s totally common for the money to only arrive with a day or two’s lag,” the investor said. “We all know the Russians have plenty of US dollars. It was always a question of whether they would be allowed to pay. Whether they keep on paying has become a political question.”

Russia’s finance ministry said earlier on Thursday that it had ordered the payments to be made, but that it was not clear whether the money would be able to reach investors.

Moscow has repeatedly claimed that western sanctions are preventing it from servicing its debt, with Anton Siluanov, finance minister, saying earlier this week that Russia was being forced into an “artificial default”. 

Siluanov also said it would be “absolutely fair” for the Russian government to make payments on its dollar debt in roubles until western sanctions on the Russian central bank were lifted.

Although some of Russia’s dollar bonds contain a clause allowing repayment in roubles, the two bonds due with coupons that came due on Wednesday are not among them. Fitch Ratings said earlier this week that payment in the Russian currency would constitute a default.

According to the US Treasury department, current US sanctions on Russia do not prohibit the country from making these payments to bondholders.

The restrictions stipulate that US entities and individuals are able to “receive interest, dividend, or maturity payments on debt or equity” from Russia’s central bank, its sovereign wealth fund or the finance ministry until May 25, after which a specific licence will be required to receive related funds.

Before then, Moscow faces more tests of its willingness to pay its debts with further coupon payments this month and the repayment of a $2bn bond on April 4.

Additional reporting by Colby Smith in Washington


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