What is the payment default?

On March 16, Russia had to repay $ 117 million to the US creditor BlackRock Investment Fund. Will countries be able to pay in the midst of conflict and sanctions that have severely deprived them of access to international financial markets? But he did so on March 17th. He sent the money to pay to his creditors. Sanctions are not intended to remove the currency he holds, but to prevent him from acquiring the currency!

But it’s just gone and a bigger repayment deadline is just around the corner. If Russia misses one, it will be declared “default”. What will the result be?

No one wants to lend to the state of not paying the debt. Investors trying to take risks do not do it for free.

The first is obvious. Finding a new creditor will be difficult. No one wants to lend to the state of not paying the debt. Investors who are willing to take risks do not do so for free: they will charge high interest rates to compensate for the risk of not receiving the money they owe.

Sovereign debt rating agencies classify Russian debt into the “speculative” category. In other words, it is more likely that no repayment will be made. However, certain investment funds, banks and insurance companies are prohibited from lending to debtors in this category. Reduce as many creditors as possible.

Trial and Vulture Fund

All of these questions do not occur in the short term. International sanctions ban the supply of foreign currency (dollars, euros, pound sterling, yen, etc.) to Russia. Russia receives enough money to pay its creditors in foreign currency. However, when the conflict ends, Russia will have much more difficulty accessing international financial markets and will suffer the image of a deadlock.

In the meantime, depending on the law in which the loan agreement was drafted, you may be challenged in a UK, US, or Russian court. These are long and costly steps and the results are uncertain. Some vulture funds have made it their business. Their name comes from the fact that they live from the weakening of debtor nations.

Elliott, an American investment fund, has sued several countries (Peru, Congo, Argentina, etc.) in court after buying debt at a low price.

When the debtor stops paying what he owe, the debt loses its value. Therefore, a debt of 100 euros is worth less than 70 euros and 50 euros. The Vulture Fund will buy them back at this discount and seek a full refund from the court. Or the right to seize boats, planes and even all kinds of property held abroad by the country.

Elliott, an American investment fund, specializes in this type of practice and has sued several countries (Peru, Congo, Argentina, etc.) in court after buying debt at a low price. Tens of millions of dollars have been paid for proceedings that result in billions of dollars each time.

Therefore, post-conflict Russia will face many problems in case of default, whether or not it is in the head of Vladimir Putin. Will there be a “credit event” as experts say?

“Country risk” experts whose job is to assess the potential for this type of difficulty must be fully phosphorylated at this time. New repayment deadlines are approaching, including $ 2 billion to be repaid in April. The Kremlin is walking a tightrope.