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Russia in ‘selective’ default on foreign currency payments, says S&P

The financial rating agency S&P Global Ratings on Saturday lowered Russia’s rating for its foreign currency payments to level “selective default”after Moscow settled a dollar debt in rubles earlier this week.

The agency’s rating, for payments in foreign currencies such as the dollar, is reduced to “SD”while the note stays on “CC” for payments in rubles, according to a press release from the agency, which also announces that it will immediately cease its assessments on Russia, in accordance with European Union requirements. Just one notch below SD on the desk scale: the rating “D”for standard.

“We do not believe that investors will be able to convert these ruble payments into dollars equal to the amounts originally owed, nor that the government will convert these payments within the 30-day grace period.”says S&P.

The agency believes sanctions against Russia are likely to be strengthened in the coming weeks “impeding Russia’s readiness and technical capabilities to fulfill the terms and conditions of its obligations to foreign debtors”

Like all states, Russia borrows money in the form of bonds, often in dollars, and must regularly pay interest and repay the capital. A country is considered to be in default when it fails to meet its financial obligations to its creditors, which may be states, financial institutions (International Monetary Fund, World Bank, etc.) or investors in the financial markets. The default is qualified as partial when the state does not reimburse part of its obligations.

For several weeks, Russia has averted the danger of bankruptcy as the US Treasury Department has allowed the use of foreign currency held abroad by Moscow to pay off foreign debt. Thus, in March, Russia paid several tranches of interest, demonstrating its willingness and ability to repay.

But since Monday, the United States has stopped allowing Russia to repay its debt with dollars held in American banks. As a result, JPMorgan, acting as correspondent bank, blocked a payment.

As a result, Russia’s finance ministry announced on Wednesday that it had paid nearly $650 million in rubles, due on April 4. The three major rating agencies S&P, Fitch and Moody’s act as arbitrators to declare a country in default. But Fitch and Moody’s have already refrained from assessing the debt of the state and of Russian companies, under the sanctions against Moscow. S&P Global Ratings was supposed to stop the ratings on April 15, but eventually announced on Saturday that it would stop doing so.

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