LONDON, April 11 (Reuters) –
A credit committee has voted to class a bond issued by Russian Railways as being in default, marking the first time a Russia-originated debt instruments has been officially classified as defaulted since the country’s invasion of Ukraine.
The EMEA Credit Derivatives Determinations Committee (CDDC), whose members include some of the world’s biggest investment banks, said on Monday it had decided a “failure to pay” credit event has occurred on Swiss franc loan participation notes linked to state-owned Russian Railways.
The loan participation notes due 2026 were issued by RZD Capital to finance a loan of 250 million Swiss francs ($268 million) to Russian Railways.
Western sanctions against Russia following the Ukraine invasion, which Russia says is a “special military operation”, have imposed strains on the Russian economy and raised questions about the possible default of many bonds issued by Russian corporations.
In turn this has raised the possibility of substantial writeoffs by Western lenders to Russia.
Bank of America (BAC.N), Goldman Sachs International (GS.N) and JPMorgan Chase Bank (JPM.N) are some of the committee members who voted “yes” to the question on whether a failure to pay event occurred on these assets. The committee met on Friday.
Some analysts see this as a test case on whether a solvent issuer that could not physically make the payment due to sanctions is considered in default.
“Apparently CDDC says yes… and probably means it will conclude something similar with the Russian sovereign trying to pay a USD coupon – but failing to,” said a source, speaking on condition of anonymity.
A spokesman for UBS AG, the notes’ paying agent, declined to comment.
Russian Railways, which operates both cargo and passenger trains along thousands of miles of railway, said it had attempted to make interest payments due March 14 but was unable to do so due to “legal and regulatory compliance obligations within the correspondent banking network,” according to an official notice posted by the SIX Swiss Exchange and referenced in the request to the committee.
Russia Finance Minister Anton Siluanov said the country will take legal action if the West tries to force it to default on its sovereign debt.
Russia could face its first sovereign external default in over a century after it made arrangements to make an international bond repayment in roubles earlier this week, even though the payment was due in U.S. dollars.
If Russia defaults, it will be the first time it’s happened since the Bolshevik Revolution in 1917.
