Several market indicators support this assessment. Markets credit default swapa type of financial instrument that protects investors from debt default, grants: 70% probability of a default In Russia this year. Fitch Ratings goes further and says that a hypothetical it’s a “Check“.
The rating agency commented on Tuesday that if Russia tried to pay in the local currency, the ruble, given its criteria it would constitute a “violation by a sovereign state.”“, Once the 30 day grace period is complete. That would make a file hypothetical At these addresses took place in mid-April.
As a general rule, when the issuer fails to pay a line of bonds, the hypothetical It automatically extends to the entire (comparable) debt of that issuer, so that investors can initiate redemption proceedings, including court proceedings. However, at least in Fitch’s eyes, the The default could be officially announced even earlier, on April 1.
because? Because on March 2 (days before Putin’s decision) he partially failed to push a group of Russian Federal Debt Securities (OFZ) denominated in rubles.
According to Fitch, the information found is that the Russian Ministry of Finance made interest payments on securities held by entities linked to the Russian Public Treasury “but Interest is not paid to foreign investorsdue to restrictions imposed by the Central Bank of Russia”, that is, capital control measures.
Even if it clarifies to Fitch that it does not have “documentation confirming the existence of any grace period” in this type of bond, the agency still maintains that the Russian Federation has 30 days (beginning on March 2) to “process” this missing payment. Subsequently April 1 is already an important date to keep in mind.
At 11:45 a.m. Wednesday, Lisbon time, Bloomberg reported that holders of some of these dollar-denominated bonds Has not received any payments yet. At 12:15 pm, RIA cited statements from Russian officials warning that these payments may not reach bondholders. After the European stock exchange closed, another confirmation came from two sources to Bloomberg: No one appears to have received any push notification.
The last time Russia defaulted on its domestic currency debt was in the 1998 crisis, but one has to go back to 1918 to find out the last time Russia defaulted on its foreign currency debt – that was right after the Bolshevik Revolution of 1917. Which heroes did not recognize the debts of the Tsar.
It seems that the Kremlin’s intention is to make the payment in rubles (at the exchange rate on the day of payment, which is important given the sudden devaluation of the Russian currency in recent weeks). But in a statement full of geopolitical symbolism, Finance Minister Anton Siluanov has hinted in recent days that Russia can count on its reserves of Chinese currency – Oh yuan – To make payments.
Moscow accuses the West of trying. is born hypothetical artificial“Without economic justification. This is because over the past few years, Russia has cemented its position as a relatively low-indebted country, with huge foreign exchange reserves spread all over the world – more than $600 billion, more than half of which is now inaccessible.”
“Strengthening Russia” has been Putin’s strategy especially since 2014, when (soft) sanctions were implemented following the annexation of Crimea. Prior to this conflict in Ukraine, Russia had a debt of only 13% of GDP (2121 data) and the total external debt was about the equivalent of Only $150 billion – less than Portugal’s net external debt.
Almost a third of this debt is owned by the federal state itself and much of the rest is in the hands of Russian banks. The rest is in the balance sheets. Institutional investors such as pension funds and hedge funds (hedge funds) and companies including banks.
Example? The new bank has, As reported by the Observer on February 28thmore than 10 million euros of debt from Gazprom which it tried but failed to get rid of, given the massive aversion to all the Russian assets that have been in the financial markets in recent weeks.
The head of the bank, Antonio Ramalho, when asked at the press conference last week, declined to give more details about the exposure to Gazprom, and did not confirm whether Novo Banco had dealings with other Russian companies.
According to Bloombergmajor global asset managers such as BlackRock and Pimco are already preparing for ‘imminent financial damage’. BlackRock funds with exposure to Russia lost 90% of their value shortly after the hack and clients invested less than $1 billion in these funds, compared to about $18 billion at the end of January.
The directors of Fidelity and Capital Group will also be among the main holders of Russian debt, in addition to the American director Franklin Resourceswhich on February 28 admitted to Double more than half your exposure Russia.
The exposure of one of Franklin’s funds to Russia was $484 million (1.2% of its total assets) and the manager adjusted the value by less than half, on its balance sheet, to $194 million. The question is whether even this valuation will not be high anyway, given the sharp decline in the value of Russian assets as the conflict continues and sanctions build up.
But it will not be only these large investors who will be exposed to state bonds. Bearing in mind that until a few weeks ago, public debt and Russian companies were also evaluation the quality, Exposure will be widespreadeven through funds that invest only in small amounts, duplicating global bond indices where Russia was listed until very recently.
This is why the leader IMF sees no ‘systemic effect’. The amount that investors risk losing from exposure to Russia is not small, but the fact is that bonds have always been around evaluation Quality (until recently) can limit systemic impact as bonds are well distributed among a large number of investors – including The most cautious investors who will have these securities in diversified portfolios.
The problem is that there was no time to reduce exposure. “When defaults are like a train wreck in slow motion, after years of misguided policies, it is possible to reduce the economic impact and losses — by gradually reducing exposure,” explains Siobhan Morden, an analyst at Amherst Pierpoint, citing Bloomberg. What makes this crisis so unique is that it was Sudden shock surprised everyone‘ adds the expert.
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