Russia has bonds on the market that are outstanding for a total of $40 billion. A deadline to pay $100 million in interest on two foreign currency bonds expired Sunday — $29 million for a euro-denominated 2036 bond and $71 million for a dollar-denominated 2026 bond.
It is questionable whether investors will ever get their money back because Russia is largely excluded from the global financial system due to sanctions. The Kremlin has repeatedly stated that it sees no reason for default. However, due to the sanctions, it is not possible to transfer money to the bondholders. The following scenarios are considered possible for foreign creditors:
- due date: Creditors can demand immediate full repayment of the bond if the debtor violates contractual terms. However, certain conditions apply here: According to the provisions for the 2026 and 2036 expiring bonds, creditors who together hold at least 25 percent of the outstanding bonds must demand immediate repayment of the entire sum. This means that all Russian foreign debts would become due immediately. However, this can also be averted.
- legal action: A lawsuit for payment is difficult. The terms of the bonds in question are unusual and sometimes vague. This is especially true for papers issued after Russia annexed Crimea in 2014 and poisoned a spy in Britain in 2018. Bonds, for example, were issued under English law, but often with no indication of the court in which a dispute is to be heard.
- Arbitration: Investors from countries that have concluded bilateral investment agreements with Russia can claim damages through arbitration proceedings. There are corresponding contracts with most EU countries, Great Britain and Canada. According to the United Nations Conference on Trade and Development (UNCTAD), 27 cases have been dealt with in this context since 1996. Of these, eleven were decided against and four in favor of Russia. Many funds have already disposed of Russian government bonds after the invasion of Ukraine at the end of February. Anyone who still has them in their portfolios had to write them off anyway – and can wait and drink tea.
Source: Nachrichten
