Russia could default on debt after US does not extend its license to pay bondholders

The United States did not extend its license to Russia to pay bondholders Wednesday, as part of sanctions against the invading country, bringing Russia closer to default, according to a report.

It would be Russia’s first default on international sovereign bonds in more than 100 years since the Bolshevik Revolution, according to Reuters.

Russia has so far been able to pay off its foreign debt obligations, despite a raft of financial sanctions by the United States and its European allies over Moscow. Invasion of Ukraine.

The license, which expired at 12 a.m. ET on Wednesday, allowed the country to make interest payments on sovereign debt — and Russia will owe nearly $2 billion before the end of the year to international creditors.

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Since the first rounds of sanctions, the Treasury Department has given banks a license to process any dollar-denominated bond payments from Russia with a temporary exemption.

A default could prevent Russia from returning to international credit markets, impede trade and cause creditors to expropriate physical assets. When Argentina stumbled in the past decade, a Navy boat and a presidential plane were seized.

Russia has bond payments due on May 27 and June 24 which together amount to about $500 million. Its bond terms allow for a portion of that to be paid in currencies other than the dollar.

“If the bondholders don’t get their money back when the money comes due, given any grace periods that apply, Russia will be in default on its sovereign debt,” Jay Oslander of law firm Wilke Oslander told Reuters. “With the exemption expiring, it appears that there is no way for bondholders to get paid.”

Russian Foreign Minister Anton Siluanov confirmed earlier this month that the country had no plan to default on its nearly $20 billion sovereign debt that it owes to foreign investors, and pledged to pay in rubles if transfers are blocked, according to Russian state media. Siluanov previously said that Moscow would take legal action if its payments were blocked.

“We will sue, because we have taken all necessary measures so that the investors receive their payments,” Siluanov told the pro-Kremlin newspaper Izvestia in April. “We will show court proof of our payments, to confirm our efforts to pay in rubles, just as we did in foreign currency. It will not be a simple process.” It is not clear who will sue Russia.

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A senior Russian lawmaker in parliament indicated on Tuesday that the country could stop paying its foreign debt due to a freeze on its assets abroad, according to Reuters.

Treasury Secretary Janet Yellen testifies before the Senate Banking, Housing, and Urban Affairs Committee hearing, May 10, 2022, on Capitol Hill, Washington. (Tom Williams/Paul via AP, File/AP Newsroom)

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Not extending the license “is something we’re actively considering right now,” Treasury Secretary Janet Yellen said during a Senate Banking Committee hearing earlier this month. We want to make sure we understand the potential consequences and ramifications of allowing the license to expire.

Some U.S. officials argued that allowing Russia to continue making debt payments might rob it of its financial war fund.

A building destroyed by bombing erupts at sunset in Kharkiv, Ukraine, Friday, March 11, 2022 (AP Photo/Andrew Marienko) (AP Photo/Andrew Marienko/AP Newsroom)

Credit rating agencies have stopped rating the country since the invasion and the international sanctions that followed.

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Despite Russia’s default risk, it is pouring in tens of billions of dollars in energy exports, Reuters reports.

Megan Heaney of Fox News and The Associated Press contributed to this report.