March 16, 2022/Fitch Ratings
According to Fitch Ratings’ Sovereign Rating Criteria, the payment in local currency of Russia’s US dollar Eurobond coupons due on 16 March would, if it were to occur, constitute a sovereign default, on expiry of the 30-day grace period. These are the first foreign-currency sovereign coupons due since the Presidential Decree of 5 March set out a differential treatment of external debt payments to creditors in countries that had joined sanctions against Russia, including their payment in roubles.
Such a forced redenomination of payment obligations would be consistent with Fitch’s downgrade on 8 March of Russia’s Long-Term Foreign-Currency Issuer Default Rating (LT FC IDR) to ‘C’, indicating that a default or a default-like process has begun. In line with Fitch’s criteria, the affected issue ratings would be lowered to ‘D’ and the LT FC IDR would be lowered to ‘Restricted Default’ if the coupon payments are not made in US dollars as per the original terms, by the end of the grace period.
Similarly, Russia’s Long-Term Local-Currency IDR of ‘C’ is consistent with the failure to credit non-resident investors with the local-currency OFZ coupons that were due on 2 March. We understand that Russia’s Ministry of Finance made these coupon payments on the 2024 OFZs to the National Settlement Depository, but they were not paid on to foreign investors because of Central Bank of Russia restrictions. This will constitute a default if not cured within 30 days of the payments falling due. Fitch is applying this 30-day grace period despite an absence of OFZ documentation that confirms the detail of any grace period.
