► What is happening around the Russian debt?
The announcement of a meeting of international creditors of Russia, Monday, September 12, sounds the formalization of its default in payment of its debts in foreign currencies. It awakens the distant memory of the non-reimbursement of Russian loans issued for the most part in the 19th century, including that contracted by Tsar Alexander III to pay for the construction of the Trans-Siberian railway. Coming to power in Moscow, Lenin had interrupted and then prohibited their reimbursement in 1918.
However, the situation in 2022 has nothing to do with it. Today’s Russia has ample foreign exchange reserves, nearly 640 billion dollars (as much in euros). And its income, with the surge in hydrocarbon prices, has not weakened since the war. However, repayments that have expired are no longer made.
► What is the crisis about?
American and European sanctions freeze Russian assets in foreign currencies held by Ukraine’s allies and prohibit Russians from using the dollar and euro for their financial transactions. Both the government and large Russian companies are therefore technically prevented from repaying their debts, which is similar to a payment default.
However, financial products (“credit default swaps” or CDS) had been taken out before the war, as is usually done, to hedge the lenders against the risk of Russian default. These CDS relate to a total amount of 2.4 billion dollars (as much in euros) according to an assessment by the bank JP Morgan.
The procedure for auctioning Russian debt by the Credit Derivatives Assessment Committee (CDDC) aims to fix the value of the part of Russian external debt to be reimbursed in 2022 and, from there, the amount of losses to be offset by CDS issuers.
► What consequences are to be expected?
In view of Russia’s GDP and the amount of the country’s external debt, the stakes are low; it is the symbol that is strong. As soon as Russia regains access to Western financial markets, the listing of Russian securities would once again be possible and redemptions could take place normally. On the other hand, if the sanctions are prolonged in favor of the war, the future deadlines for the repayment of the Russian debt will be subject to the same procedure.
In the worst case, CDS issuers will have to offset all of the debt issued that has reached maturity, which could weaken certain market participants in proportion to their exposure to what should today be called “the Russian risk”. But the experts dismiss, for the moment, any crisis of the system.