S&P downgrade signals Russia heading for historic default

BOSTON (AP) — Rating agency Standard & Poor’s has downgraded its assessment of Russia’s ability to repay its external debt, signaling growing prospects that Moscow will soon default. on foreign loans for the first time in more than a century.

On Friday night, S&P Global Ratings downgraded to ‘selective default’ after Russia arranged to make ruble-based foreign bond payments on Monday when they were due in dollars. He said he did not expect Russia to be able to convert rubles into dollars within the allowed 30-day grace period.

S&P said in a statement that its decision was based in part on its view that sanctions against Russia for its invasion of Ukraine “are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical capabilities to honor the terms and conditions of its obligations to foreign creditors.”

An S&P spokesperson said a selective default rating occurs when a lender misses a specific payment but makes others on time.

While Russia has signaled that it remains willing to pay its debts, the Kremlin has also warned that it will do so in rubles if its overseas foreign currency accounts remain frozen.

Tougher sanctions imposed on Russia this week after evidence of alleged war crimes – the killing of civilians in the town of Bucha during the Russian military occupation – prohibited him from using the foreign exchange reserves held in American banks for the payment of the debt.

Russia’s Finance Ministry said on Wednesday it had attempted to make a $649 million payment for two bonds to an unnamed US bank – previously reported as JPMorgan Chase – but the heightened sanctions were preventing acceptance. payment, so he paid in rubles.

Western sanctions have weighed heavily on the Russian economyand S&P and other rating agencies had already downgraded its debt to “junk” status, deeming a default very likely.

Russia has used strict capital controls, other tough measures and proceeds from oil and gas sales to artificially prop up the ruble.

The country has not defaulted on its foreign debt since the Bolshevik Revolution of 1917, when the Soviet Union emerged. Even in the late 1990s, after the demise of the Soviet Union, Russia was able to continue paying its foreign debts with the help of international aid. However, it defaulted on its domestic debt.