“Game Over?” – Russia To Be In Technical Default Within Hours
More than two decades ago, on August 17, 1998, Russia defaulted on its debt and devalued the ruble, sparking a political crisis that culminated with Vladimir Putin replacing Boris Yeltsin and which also eventually resulted in the spectacular implosion of a then little known hedge fund called Long Term Capital Management (which was staffed to the gills with “brilliant” Nobel prize winners) which after receiving a Fed-led Wall Street bailout, ushered in the era of too big to fail.
We bring this up because in just a few hours, Russia will be in another technical default.
Amid the flurry of capital controls imposed by Moscow today, the Russian central bank banned coupon payments to foreign owners of ruble bonds known as OFZs in what it said was a temporary step to shore up markets in the wake of international sanctions. What it really is, is a technical default on upcoming interest and maturity payments, with a trigger due as soon as tomorrow.
The Bank of Russia issued the instruction to depositaries and registries as part of a raft of measures announced this week that included a freeze on local security sales by foreigners. It could leave foreign investors who held almost 3 trillion rubles ($29 billion) in the debt at the start of February unable to collect income on their holdings, which are already blocked from sale by restrictions.
“Issuers have the right to make decisions on the payment of dividends and the making of other payments on securities and transfer them to the accounting system,” the central bank said in an emailed reply to questions. “However, the payments themselves will not be made by depositories and registrars to foreign clients. This also applies to OFZ.”
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