Credit rating downgrade indicates Russia heading for historic default

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Credit Rating Downgrade Indicates Russia Heading For Historic Default Credit Rating Downgrade Indicates Russia Heading For Historic Default
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By Frank Bajak, Associated Press

The credit ratings agency Standard & Poor’s has downgraded its assessment of Russia’s ability to repay foreign debt, signalling rising prospects that Moscow will soon default on external loans for the first time in more than a century.

S&P Global Ratings issued the downgrade to “selective default” late Friday, after Russia arranged to make foreign bond payments in roubles on Monday when they were due in dollars.

It said it did not expect Russia to be able to convert the roubles into dollars within the 30-day grace period allowed.

S&P said in a statement that its decision was based partly on its opinion that sanctions on Russia over its invasion of Ukraine “are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical abilities to honour the terms and conditions of its obligations to foreign debtholders”.

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While Russia has signalled that it remains willing to pay its debts, the Kremlin has also warned that it would do so in roubles if its overseas accounts in foreign currencies remain frozen.

Tightened sanctions placed on Russia this week after evidence of alleged war crimes – the killing of civilians in the town of Bucha during Russian military occupation – barred it from using any foreign reserves held in US banks for debt payments.

Russia’s finance ministry said on Wednesday that it tried to make a 649 million dollar (£498 million) payment toward two bonds to an unnamed US bank, previously reported as JPMorgan Chase, but that the tightened sanctions prevented the payment from being accepted, so it paid in roubles.

Western sanctions have severely squeezed Russia’s economy, and S&P and other ratings agencies had already downgraded its debt to “junk” status, deeming a default highly likely.

Russia has used strict capital controls, other severe measures and proceeds from oil and gas sales to artificially prop up the rouble.

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