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The US prevents Russia from making bond payments

The Biden administration on Monday blocked Russia from paying its sovereign debtholders more than $600 million from reserves in American banks – increasing pressure on the Kremlin, which is trying to avoid a bond default.

The move comes as images from Ukraine reveal appalling war crimes, including massacred civilians believed to have died at the hands of Russian soldiers.

On Monday, as the largest of the payments fell due, including a $552.4 million principal payment on a maturing bond, the US government decided to bar Moscow from accessing the frozen funds, a US Treasury Department spokesman said .

The move should force Moscow to make the difficult decision of whether to use dollars it has access to to pay its debts or for other purposes, including aiding its war effort, the spokesman said.

Russia faces a historic default if it chooses not to.

“Russia must choose between using up the remaining valuable dollar reserves or generating new revenue or defaulting,” the spokesman said.

The move puts additional pressure on Russian President Vladimir Putin's economy.
The move puts additional pressure on Russian President Vladimir Putin’s economy.
via REUTERS

An $84 million coupon payment on a 2042 government bond was also due Monday.

Foreign exchange reserves held by the Central Bank of Russia at US financial institutions were frozen as part of sanctions imposed after Russia invaded Ukraine on February 24.

But the Treasury had allowed the Russian government to use those funds to make coupon payments on dollar-denominated government bonds on a case-by-case basis.

JPMorgan Chase & Co., which had previously processed payments as a correspondent bank, has been stopped by the Treasury Department, a source familiar with the matter told Reuters.

Images from Ukraine show horrifying war crimes believed to have been committed by invading Russian forces.
Images from Ukraine show horrific war crimes believed to have been committed by invading Russian forces.
AFP via Getty Images

The correspondent bank processes the coupon payments from Russia and sends them to the paying agent for distribution to foreign bondholders.

The country has a 30-day grace period to make the payment, the source said.

Last week, Russia again avoided defaulting on its foreign debt when the Kremlin defaulted on a $447 million bond issue.

The payment was processed by JPMorgan. It was then transferred to the management agent, which in this case is BNY Mellon, sources familiar with the matter told the Post.

Russian bondholders received $87.5 million in coupons and $359 million in principal payments.

Bond payments have been taking longer to process through the system since sanctions hit Russia.

This is the second time in as many months that Russia has avoided defaulting on its debt.

With postal wires

https://nypost.com/2022/04/05/us-blocks-russia-from-making-bond-payments/ The US prevents Russia from making bond payments

DUSTIN JONES

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