Russia Pays Interest on State Eurobonds in Rubles – Contrary to Contract

The Russian Ministry of Finance has announced that it was forced to pay coupon interest on two state eurobonds in rubles as a foreign bank refused to process their payment order in dollars. 

Specifically, the foreign bank rejected Russia’s order to pay $649.2 million in coupon interest on two state bonds and did not process the payment of the principal of the eurobond maturing this year, the ministry emphasized, without naming the bank in question.

The Russian Ministry of Finance stated that foreign holders of the two eurobonds could convert rubles into foreign currencies once they regain access to frozen foreign exchange reserves, and the ministry added that ‘believes it has fulfilled its obligations in full’.

However, Russia did not have the option to pay in rubles, according to the bond documents, which has raised concerns among investors, Bloomberg reports. If the debtor does not repay the amount in the currency specified in the contract, it is considered unable to meet its financial obligations. 

Since the beginning of the invasion, the U.S. and its allies have frozen half of the total $640 billion of Russia’s foreign exchange and gold reserves, Reuters notes. 

The assets of the Russian central bank in U.S. banks were frozen shortly after the start of the Russian invasion of Ukraine, and its eventual use for paying coupon interest on state bonds was approved by the U.S. Department of the Treasury. 

A spokesperson for the U.S. Department of the Treasury announced on Monday that they have completely blocked Russia’s access to foreign exchange reserves. 

– Russia now has to decide whether to continue drawing on its remaining precious reserves and new revenues coming in or to show that as a debtor it cannot meet its financial obligations – said the spokesperson for the U.S. Department.

An unnamed source told Reuters that the ministry halted the processing of payments at JPMorgan Chase & Co., the correspondent bank.

The correspondent bank processes Russian coupon interest payments, sending them to the paying bank which distributes the money to bondholders abroad, explains Reuters.