Russia came closer to averting its first default since 1998 when payments on two of its dollar bonds made their way to investors through the Western financial system.

The country’s foreign-currency government bonds have risen as evidence emerges that $117 million in coupon payments, due this week, are making their way down the chain separating the Russian government from investors.

Euroclear and Clearstream, the main international securities depositories, have received and processed two coupons from paying agent Citigroup, according to acquaintances. The duo, who declined to comment, arrange transactions on behalf of investors and transfer funds between bank accounts. The funds are then passed on to the custodian banks before finally reaching the investors.

JPMorgan had previously processed payments owed on two bonds on Wednesday and passed the money on to Citi, according to a person familiar with the matter. JPMorgan made the decision to process the payment after consulting with US authorities, the person added. Citi and JPMorgan both declined to comment.

The two bonds, maturing in 2023 and 2043, traded at about 50 cents against the dollar on Friday — up from about 20 cents a week ago — while the rest of Russia’s $38.5 billion in foreign exchange debt rose to similar levels. As bonds continue to trade at distressed levels, investors have reassessed a market that was priced for instant default.

“The Russian government has shown a very strong willingness to pay,” said Marcelo Assalin, head of emerging markets debt at William Blair. “They clearly didn’t want to be labeled as defaulters. The question is how long they can continue.”

Russia’s finance ministry said Friday that Citi had received the money to make the coupon payments. “The ministry has thus fulfilled its obligations to pay government securities in full in accordance with the issuance documentation for Eurobond issuance,” Russia’s Interfax news agency said.

Monthly Coupons and Maturities for Russian Government Bonds in Foreign Currency

A European investor said Friday that he had not yet received the interest payment, but expected it to come.

Russia has a grace period of 30 days from the due date of March 16 to make the payment and avoid default. US sanctions prohibit investors from trading Russian bonds issued after March 1, but they are still allowed to trade bonds sold before that date.

Despite clear progress in paying off Wednesday’s coupon payments, rating agency S&P Global downgraded Russia’s credit rating to double C late Thursday, citing “reported difficulties in meeting debt service at maturity”.

“We think the debt repayments on Russian Eurobonds due in the coming weeks could face similar technical issues,” S&P said, adding that an exemption in US sanctions that would allow US investors to receive interest payments from Russia expires on May 25, further complicating debt service after that date.

Russia owes another $615 million in interest payments this month, including $66 million on Monday, and must repay $2 billion on April 4.

Monday’s coupon is on a bond whose terms include a “fallback” clause that allows repayment in rubles if Russia is unable to pay in dollars. Russian Finance Minister Anton Siluanov said earlier this week it would be “absolutely fair” to make repayments in rubles until Western sanctions freezing Russia’s central bank assets are lifted, raising concerns that Moscow might trying to make Wednesday’s payments in the Russian Federation. currency.

The governor of Russia’s central bank said on Friday that trading in local currency sovereign debt – which had been suspended shortly after the invasion of Ukraine – would resume on Monday. Elvira Nabiullina also said the Bank of Russia will purchase government bonds denominated in ruble “to avoid excessive volatility and ensure balanced liquidity in this segment at the reopening stage”.

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