Moody's confirms Russia defaults on foreign debt

Moody's ratings agency has confirmed that Russia defaulted on its foreign debt for the first time in a century, after bond holders did not receive $100 million in interest payments.

"On 27 June, holders of Russia's sovereign debt had not received coupon payments on two eurobonds worth $100 million by the time the 30-calendar-day grace period expired, which we consider an event of default under our definition," Moody's said.

The historic default follows a series of unprecedented Western sanctions that have increasingly isolated Russia from the global financial system following its incursion into Ukraine.

Russia lost the last avenue to service its foreign-currency loans after the United States removed an exemption last month that allowed US investors to receive Moscow's payments.

On Monday, Moscow said there were "no grounds to call this situation a default" as the payments did not reach creditors due to the "the actions of third parties".

The Russian authorities insist they have the funds to honour the country's debt, calling the predicament a "farce" and accusing the West of pushing an "artificial" default.

Moody's warned that more defaults "are likely".

Moody's released an "issuer comment" instead of a formal default declaration, as sanctions bar credit ratings agencies from covering Russia's sovereign debt.

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'Limited' global impact

The sanctions have included freezing the Russian government's stockpile of $300 billion in foreign currency reserves held abroad, making it more complicated for Moscow to settle its foreign debts.

After Washington closed the last payment loophole last month, Russia said it would pay debt in roubles that could be converted into foreign currency, using a Russian financial institution as a paying agent.

But Moody's said it "would likely treat payments in roubles as a default for bonds that do not allow for such redenomination in the contractual terms".

The country last defaulted on its foreign debt in 1918, when Bolshevik revolution leader Vladimir Lenin refused to recognise the massive debts of the deposed tsar's regime.

Russia defaulted on domestic debt in 1998 when, due to a drop in commodity prices, it faced a financial squeeze that prevented it from propping up the ruble and paying off debts that accumulated during the first war in Chechnya between 1994 and 1996.

In March, the International Monetary Fund's number two official, Gita Gopinath, said  that a Russian default would have "limited" impact on the global financial system.

READ MORE: Russia 'defaults' on foreign debt for first time in over a century