Russia is on the brink of defaulting in repayment of her debts to bilateral and multilateral creditors according to Oxford Economics. This will lead to the US seizing the Russian Central bank’s frozen assets.
Russia has some grace period remaining to repay their debts such as foreign bonds, but pundits still see a likelihood of defaulting. If it happens, this will be one of the hardest events to resolve.
These revelations were made by the consultancy firm Oxford Economics.
If it happens, this will be Russia’s first default on its foreign-currency debt since the Bolshevik revolution in 1918.
At the beginning of April US Treasury blocked Russia from paying $650 million due on two bonds using money held in American banks. Russia has made an attempt to pay in rubles but credit rating agencies have interpreted this to mean a default.
Russia has been given 30 days from April 4 to pay their debt in dollars.
Oxford Economics has indicated that investors now face a “very long and difficult” legal road.
“Russia’s debt crisis will be among the most difficult in history to resolve, since the default has its roots in politics rather than finance,” an economist from Oxford Economics wrote in a report that was sent to clients Thursday.
One of the biggest problems is that financial and political relations between the West and Russia has been affected severely.
The second challenge is that Ukraine may go to international courts to lay a claim to Russian assets to be used in rebuilding the country after the war.
In such a case, the investors will be forced to compete with the Ukraine government for the Russian assets.
US might be forced to seize funds from Russian central bank’s foreign currency reserves. Western countries have already frozen a stockpile of such reserve to a tune of $600 billion.
This is not going to be the first time it will happen because already President Joe Biden ordered that half of Afghanistan’s central bank reserves were frozen and will be used for compensating the victims of 9/11 terrorist attacks.
“The US administration could possibly find a stronger moral cause for splitting the US-denominated portion of Russia’s FX reserves between Ukraine and bondholders,” Orlova said.
Russia’s Finance Minister, Anton Siluanov, said that his country has done their part by paying in Rubles but western governments are forcing them into default and Russia is considering a legal action.
A part from sovereign debts, there is also a likely avalanche of legal actions on corporate debt faults considering that the US banned American banks from processing any payments for Russia.
According to JP Morgan, currently, there are approximately $98 billion of outstanding Russian corporate foreign-currency bonds out of which $21.3 billion is owned by foreign investors.
GOT a story? RING Kerosi Dotcom on +254 20 78 64348 or EMAIL info@kerosi.com
