Russia’s possible bankruptcy on the foreign debt will not cause a major shock to world markets, the White House predicts, given suspicions that Moscow has paid its international creditors on the maturity of two debt issues in dollars and euros, which is on Friday.
“We expect the impact on the United States and the world economy to be minimal, given that Russia is already financially isolated,” White House spokeswoman Karin Jean-Pierre told a news conference.
The United States pushed Russia closer to the brink of a historic debt default on Wednesday after failing to renew a license to pay holders of Russian government securities at a time when Washington is stepping up pressure on Russia over its invasion of Ukraine.
Moscow shifted its obligations on both issues in the denominational currencies of the securities a week earlier to avoid problems after the license expired, with investment bank JP Morgan, which is the intermediary of some of the largest creditors, saying payments were received.
The next maturity dates are June 23 and 24, when there are maturities of four dollar issues. Payments on the June 24 bonds will not be possible without a US license, and they have a grace period of 15 working days, Reuters notes. This could lead to Russia defaulting on bondholders for non-compliance with contract terms.
On Thursday, Russia said it was considering reissuing debt issues in rubles to avoid problems with payments in dollars and euros over sanctions imposed on it over the war in Ukraine.
Sberbank refused to pay dividends
Meanwhile, Russia’s largest bank, Sberbank, has decided not to pay dividends to its shareholders for 2021.
Earlier, the government instructed the Ministry of Finance, when preparing directives for participation in a meeting of the Supervisory Board of Sberbank not to provide for the payment of dividends on ordinary and preferred shares to ensure sustainable lending to corporate clients and financial organizations, Interfax reported on Friday.
In April, the Central Bank recommended that state-owned banks refuse to pay dividends in 2022, given the difficult economic situation.
On April 6, the United States imposed blocking sanctions on Sberbank and many companies controlled by it, which envisions a “freeze” of assets in the United States and banned US citizens from conducting any transactions with the bank.
Before the war, Sberbank planned to distribute at least 50% of its net profit to dividends by 2023. At the end of 2020, it paid 55.9% of its net profit, over 422 billion rubles to its shareholders as dividends.
On the verge of bankruptcy: Russia has announced that it will pay its debt in rubles
Russia has said it will pay its debts to international creditors in rubles after the US Treasury Department’s license authorizing payments on foreign debt in dollars expired at 6:01 a.m. Bulgarian time on Wednesday.
The statement was made by the Russian Ministry of Finance after it became clear that OFAC (the division of sanctions of the US Treasury Department) will not renew the license.
According to Moscow, the non-renewal of the license violates the rights of creditors and “makes it impossible to continue servicing the state’s foreign debt in US dollars.” Therefore, payments will be made in rubles, and the national depositary, as the paying agent, can then convert them into dollars and euros.
“The current situation has nothing to do with 1998 when Russia did not have enough money to pay off its debts. Now there is money, the willingness to pay is also there. This situation, artificially created by an enemy country, will not affect quality. of life of the Russians “, said the Minister of Finance Anton Siluanov, quoted by the Russian agency” Interfax “.
According to the Russian Central Bank, due to sanctions over the war in Ukraine, its assets worth about $ 300 billion have been blocked abroad. The United States said it had frozen about $ 100 billion, and the EU said on Wednesday it had seized about $ 25 billion.
New date
The next maturity of Russia’s government debt is on May 27 in two series of bonds denominated in dollars and euros. The finance ministry announced last Friday that it had transferred the money in deposit to the depositary ahead of schedule, two weeks before maturity, to use the license before it expires. But it is not known if the funds have reached all investors. An Asian-based bondholder told Reuters that the payment had not arrived in the company’s account by Wednesday. Russia has a 30-day grace period for both payments.
However, in a statement to its clients, financial services company JPMorgan wrote that although there was some “residual uncertainty” about the translation, it was most likely that it had been paid for.
“This then focuses on the next two payment dates – June 23 and June 24,” wrote Johnny Gouldon of JPMorgan.
Russia then has to repay three-dollar bonds on June 23 and another the next day. Payments on the June 24 bonds will not be possible without a US license, and they have a grace period of 15 working days, Reuters notes. This could lead to Russia defaulting on bondholders for non-compliance with contract terms.
“Russia’s economy is already under heavy sanctions, so the immediate consequences of non-compliance are unlikely to mean much to the economy,” Alexei Bulgakov of Renaissance Capital told Reuters.
But a default would prevent Russia from regaining access to international markets until it has paid off its creditors in full and all lawsuits stemming from default are settled. And that can take years.
The European Commission is proposing that circumventing sanctions should be a crime
The European Commission proposed on Wednesday that avoiding EU sanctions be declared a pan-European crime after it turned out that only 12 of the 27 countries have similar provisions.
According to European law, it is the national authorities that must ensure that the sanctions imposed by the EU are complied with, and if they do not, the European Commission can bring criminal proceedings against them.
Some countries are prosecuting circumvention only as an administrative offense, said EU Justice Commissioner Didier Reynders, who co-proposed a proposal to expand the list of EU-recognized criminal offenses. This creates risks for sanctioned individuals to redirect their assets to countries with lighter or no sanctions to avoid seizure. The idea will be submitted for approval to European governments, which must adopt it by consensus, and to the European Parliament, where a simple majority is sought.
Only then will the European Commission have a legal basis to lay down more detailed rules for prosecuting violations of the sanctions regime, including common definitions and penalties. The European Commission believes that such crimes as transfer and transformation of property should be prosecuted with 4-12 years in prison and affect not only the owners of assets included in the EU sanctions lists but also their lawyers, advisers, and bankers, said Reynders.
So far, the EU has frozen assets of Russian oligarchs on the 9.8 billion-euro sanctions list over the war in Ukraine and blocked 200 billion euros in bank transactions. The frozen assets of the Russian central bank are 23 billion euros, which is only a quarter of the assets seized in the United States from the Russian treasury.
All funds and assets remain in the possession of their owners, who are only limited to disposing of them, the commissioner said. They can be seized only if it is proved that they were acquired through criminal activity and there is a court decision for that. According to the EU Commissioner, no such decision has been issued since the start of the war in the EU.
Reinders explained that the future directive will provide a legal possibility for the assets of sanctioned people who have been confiscated by a court decision to be transferred to the future European Fund for Reconstruction of Ukraine.
Confiscation and no sentence
Meanwhile, the European Commission is proposing another directive to facilitate the confiscation of assets of people convicted of organized crime. It expands the list of crimes to be confiscated, including, in addition to the sanctioned property, crimes against nature, cybersecurity, the transfer of human organs, weapons, migrants, and cultural sites, as well as murder and torture.
The European Commission proposes that the bodies involved in the seizure of illegally acquired property (in Bulgaria KPKONPI) receive the right to temporary confiscation. This will be possible within up to seven days to avoid the transfer and concealment of the property until a court order for confiscation is issued, EU Commissioner for Home Affairs Ilva Johnson said.
The possibility of confiscating property without a sentence is envisaged if “the court is convinced that the assets have been acquired through criminal activity” if their owner cannot be convicted due to absconding, death, or prescription, the EU commissioner added.
Currently, the EU manages to confiscate only 1% of criminal assets and seize about 2% of them. Revenues from illegal activities are estimated at 139 billion euros a year. According to the European Commission, about 80% of the money and other property comes from illegal acts, 60% – from corruption. At least 70% of organized crime groups work in more than three European countries.
