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Russia lurches towards default as the US ends a key bond payment exemption

Business Insider US
Russian President Vladimir Putin speaks with Finance Minister Anton Siluanov.
  • Russia moved closer to a default on Wednesday after the US Treasury let a key sanctions exemption expire.
  • The Treasury had allowed US investors to receive bond payments from Russia, despite the tough sanctions in place.
  • But that carve-out has now ended, meaning US investors are not allowed to receive payments from Moscow.
  • For more stories visit Business Insider.

The chances of Russia tumbling into a default rose Wednesday after the US Treasury ended a key sanctions exemption.

The Treasury said in February it would allow Russian sovereign bond payments to reach US investors, despite the tough sanctions slapped on Moscow.

But the Treasury's Office of Foreign Assets Control said Tuesday night it would let the exemption expire at 12.01 a.m. ET Wednesday.

It means US investors will not be allowed to receive bond payments from Russia without breaching sanctions.

The move further complicates Russia's efforts to pay its debts. Moscow has so far kept up payments despite the US in April barring the government from using money held at American banks.

Russia is scheduled to make bond coupon payments of 29 million euros ($31 million) and $71 million on May 27. It has already transferred some of the money in anticipation of the US exemption expiring.

Despite the end of the exemption, Russia could still avoid officially defaulting, according to Olga Nikolaeva and Iskander Lutsko of Russian broker ITI Capital.

They said they think the majority of Russian bondholders are now European entities, and the US Treasury's move only covers US investors.

"Russia will proceed with coupon payments, while those blocked from getting money from the Russian sovereign will not be able to meet a quorum requirement to initiate litigation as part of default procedures," they said in a note this week.


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