Russia will halt bond sales for the rest of the year and take legal action if sanctions force it into a default on its debt, according to the country’s finance minister.
Anton Siluanov’s comments in Russian newspaper Izvestia come days after the government breached the terms on two bonds by paying investors rubles instead of dollars, and its credit grade at S&P Global Ratings was cut to ‘selective default’.
The threat of default has been hanging over Russia for weeks after it was hit with sanctions because of its invasion of Ukraine. The government in Moscow says it has the funds to meet its debt obligations and has repeatedly blamed the restrictions for its difficulties in making bond payments. Siluanov has said the US and others are trying to force Russia into default.
“Of course, we will sue, because we have taken all the necessary steps to ensure that investors receive their payments,” he said, according to Izvestia. “It will not be an easy process. We will have to very actively prove our case, despite all the difficulties.”
Because of the financial and economic restrictions, the cost of insuring Russia’s government debt surged at one point last week to signal a 99% chance of default within a year.
Siluanov also said Russia was halting bond auctions because of prohibitive borrowing costs.
“We do not plan to go to the local market or foreign markets this year,” he said. “It makes no sense because the borrowing cost would be cosmic.”
Todd Schubert, head of fixed income at Bank of Singapore, said Russia’s fiscal position at the onset of the Ukrainian conflict was favourable thanks to low leverage and sizable foreign exchange reserves.
It also has massive inflows of funds thanks to its oil and gas exports, with the European Union alone paying about 1 billion euros a day for energy.
“This gives the government flexibility to abstain from the public debt markets for the foreseeable future,” Schubert said.
S&P cut its rating on Russia on Saturday in a final assessment before it pulled coverage. Ratings firms are abandoning Russia because of a European Union ban. Moody’s Investors Service and Fitch Ratings have also withdrawn ahead of an April 15 deadline.