On Saturday, Russia’s foreign currency payment rating has been lowered after Moscow used rubles to make a dollar-denominated debt payment last week.

The S&P Global’s rating casts doubt on increased risks that Moscow will not be able and willing to honor its commitments to foreign debtholders.

In a statement, S&P Global said that it understood that Russia had made coupon and principal payments on dollar-denominated Eurobonds on April 4:

We currently don’t expect that investors will be able to convert those ruble payments into dollars equivalent to the original due amounts, or that the government will convert those payments within a 30-day grace period.

The agency also believes that the sanctions against Russia over its invasion of Ukraine will be tightened again shortly. The said move was likely to impede Moscow’s willingness or “technical abilities” in order to achieve the terms and conditions of its commitments to foreign holders of its sovereign debt.

Reuters reported:

Russia’s finance minister on Thursday said the country will do everything possible to pay its creditors, but investors in Russia’s international bonds face an increasingly uncertain path to recover their money should the country default. 

S&P assigns a selective default rating when it believes the debtor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.

Russia has not defaulted on its external debt since the aftermath of its 1917 revolution, but its bonds have now emerged as a flashpoint in its economic tussle with Western countries.

A default was unimaginable until recently, with Russia rated as investment grade in the run-up to its Feb. 24 invasion of Ukraine, which Moscow calls a “special military operation”.

The Epoch Times noted:

In response to the sanctions, Russian President Vladimir Putin on March 5 signed a decree allowing the payment of foreign currency debts to “unfriendly” countries in rubles.

Even though around half of Russia’s foreign currency reserves held abroad have been frozen, analysts say Moscow has the means and ability to service its foreign-denominated debt, as it still has hundreds of millions that are not blocked and the country continues to receive payments for energy.

The U.S. Treasury has not banned correspondence banking with Russia and has granted a license to allow for payments relating to Moscow servicing sovereign debt until May 25.

Sources: The Epoch Times, Reuters