The United States is set to block the repayment of Russian debt, raising the possibility of default

(Bloomberg) – The Biden administration is set to completely block Russia’s ability to pay US bondholders after a deadline expires next week, a move that could bring Moscow to the brink of default.

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The Treasury Department’s Office of Foreign Assets Control is expected to allow the temporary release to be delayed until May 25, according to people familiar with the matter. The waiver, issued shortly after the US imposed sanctions on Russia for invading Ukraine in February, gave Moscow room to issue coupons, helping it avoid defaults on its government debt.

After nearly three months of fighting in Ukraine, the final straw in Russia’s debt story could be the end of the carving-out. It has so far managed to pay off all its debts to lenders, breaking through the entanglement of sanctions that have blocked some avenues.

This includes the 11th-hour escape earlier this month, when Moscow was allowed to make blocked payments after tapping its internal dollar reserves. But it is unclear how this could be done.

Some Treasury officials have privately argued that allowing Russia to repay its debt would further drain its coffers and redirect resources that would otherwise be spent on arms and military operations in Ukraine. But the administration has decided to extend the waiver as a way to maintain financial pressure on Moscow, people said.

Another source familiar with the matter said the Treasury had not made a final decision. Spokesmen for the White House and the Treasury Department did not immediately return calls seeking comment.

In the end, any impact on Russia’s finances from creditors’ payments is lessened by the amount of money the country earns each week from oil, gas and other commodity exports.

“This is an interesting one,” said Matthew Vogel, London-based portfolio manager and head of sovereign research at FIM Partners. The move leaves Russia “apparently desperate to pay as a debtor, but has not been allowed to do so.”

Moscow’s next loan repayment is on foreign bonds maturing May 27, 2026 and 2036. The former is dollar-denominated but allows payments in Euros, Swiss francs or sterling as well as interest payments in dollars on Swiss accounts. United Kingdom or EU.

The Euro-denominated 2036 bond has an additional clause that allows payments in rubles.

But while the U.S. decision effectively barred U.S. investors from receiving money from Moscow, these clauses may not be enough to allow Russia to avoid strict sanctions.

If Russia finds a way out, the next sovereign transfer dollar payment condition will be June 24, when the interest on a 2028 sovereign note will be outstanding. Overall, Russia is paying more than $ 490 million in foreign currency bond payments to creditors by the end of June.

“It continues to be our baseline scenario that a default will happen,” said Carlos de Susa, an investor in Vontobel Asset Management in Zurich. “I do not know why the United States will renew the engraving. Russian sovereign debt is very low, they still have resources and some money flowing. So it is not very difficult for them to continue the loan service. The Russian government only wants to maintain its reputation.

Below is a list of upcoming bond payments compiled by Bloomberg:

(Updated across loan context.)

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