The payments are seen as the first test of whether Moscow will meet its international debt obligations despite Western sanctions.
Russia’s Ministry of Finance has said it transferred a $117m bond interest payment, indicating it could have avoided its first external bond default in a century.
The payments, which were due on Wednesday but with a 30-day grace period, are seen as the first test of whether Moscow will meet its international debt obligations after Western sanctions froze much of the government’s hard currency reserves held outside the country.
The money was transferred to an account at Citibank in London, according to a ministry statement reported by Russian state media on Thursday.
The ministry, which did not specify if the money would reach foreign investors by the deadline, said it would issue a statement later on the results of the transfer. Citibank has not commented on the matter.
The head of the International Monetary Fund warned a state default was no longer “an improbable event”, and ratings agencies have slashed Russia’s credit rating to below investment grade, or “junk”.
Finance Minister Anton Siluanov said Russia would pay in roubles should sanctions result in banks being unable to carry out interest payments in dollars. The ratings agency Fitch said such a move would constitute a default.
The payment would be the first on foreign currency debt since Russia invaded Ukraine on February 24. Russia has about $40bn in foreign currency debt, about half of that owed to foreigners.
Washington slapped harsh sanctions on Russia’s central bank in late February, blocking Americans from engaging in any transactions involving it.
In early March, however, the US Office of Foreign Assets Control (OFAC) issued a general licence that authorised transactions for US people for “the receipt of interest, dividend, or maturity payments in connection with debt or equity” issued by Russia’s finance ministry, central bank or wealth fund. The exemption runs out on May 25.
But Russia could face a default even before then. A March 2 payment on rouble-denominated bonds held by foreign investors was made into a state depositary fund but not sent on to investors because of Russian central bank restrictions.
Ratings agency Fitch has said that would constitute a default after 30 days, or the beginning of April. On top of that, further bond payments are coming due in the weeks and months ahead.
Some creditors received payment in dollars of Russian bond coupons which fell due this week, two market sources told the Reuters news agency.
“The coupon was paid, against my expectations, and in dollars,” one person said. Another person said the money had been received by a client who was a bondholder.
Some other creditors said they had yet to receive their funds but were optimistic they were on the way, noting they had received payments on hard currency bonds from a raft of state-run and private Russian companies in recent days.
Another source said JPMorgan, Russia’s correspondent bank, had processed the cash sent by the government and credited it to the paying agent, Citi. It would be checked and then distributed to various bondholders, the source said. Citi declined to comment.