Putin signs decree on new scheme to services Eurobonds as possible default looms

RUSSIAN President Vladimir Putin signed a decree on Wednesday (Jun 22) establishing temporary procedures to fulfil foreign debt obligations, as investors keep a close eye on a potential default.

The Kremlin has said there were no grounds for Russia to default on its debts. Moscow argues it has the funds, but has trouble making interest payments to bondholders because of Western sanctions and accuses the West of trying to drive Russia into an artificial default.

Putin had given the government 10 days to choose banks to handle payments on Eurobonds under a new scheme, which suggests that Russia will consider its debt obligations fulfilled when it pays bondholders in roubles.

The failure to service foreign debt due to Western sanctions for what Russia calls a "special military operation" in Ukraine is taking it closer to the first default on international bonds since the Bolshevik revolution more than a century ago.

"Obligations on Eurobonds of the Russian Federation will be considered properly fulfilled if they are executed in roubles in the amount equivalent to the value of obligations in foreign currency," the decree said. The exchange rate will be based on the rate on the Russian internal currency market on the day of the payment, according to the decree.

The default could come around the end of June. Russia was due to make bond interest payments on May 27 of US$71.25 million and 26.5 million euros (S$39 million).

Russia said it had transferred the cash to the National Settlement Depository, but sanctions likely prevented it progressing further. To avert default, the money must land in bondholders' accounts within a 30-day grace period.

The finance ministry said last week Russia will pay roubles on its Eurobonds that can be later converted into foreign currency. REUTERS