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Credit…Maxim Shemetov/Reuters

S&P Global placed Russia under a “selective default” rating after the Russian government said last week that it had paid off about $650 million in rubles of dollar-denominated debt.

The ratings agency said late Friday that it did not expect investors to be able to convert ruble payments into U.S. dollars equivalent to the original amount owed, leading Russia to its first foreign-currency sovereign debt default in more than a century.

The bonds have a 30-day grace period, giving the Russian government time to pay in dollars or find some other way to avoid default. S&P Global said it did not expect the government to convert the payments within the grace period.

“Sanctions on Russia are likely to increase further in the coming weeks, hampering Russia’s willingness and technical ability to meet the terms and conditions of its obligations to foreign debt holders,” the ratings agency said. .

On April 4, a dollar-denominated Russian government bond matured and another coupon payment was due. That same day, the US Treasury Department tightened its restrictions on Russian transactions in an effort to force Russia to choose between depleting its available dollar reserves or using new revenue to avoid defaulting on its debt. The department prevented Russia from using dollars held in US banks for its bond payments, and JPMorgan did not complete the transactions. Later, the Russian Ministry of Finance said that it paid the debt in rubles.

While the finance ministry said it considered its debt obligations “fully” met, rating agencies have said payment in a currency other than the agreed upon would be a default. None of the bonds maturing on April 4 had a provision for payment in currencies other than the dollar.

Sanctions were imposed on Russia, including a freeze on central bank reserves abroad, after its invasion of Ukraine in late February. Ratings agencies later downgraded Russian debt to junk status and investors bet on a default. But for weeks Russia continued to pay down debt. US authorities allowed the transactions and said US bondholders could receive debt payments, despite sanctions, until May 25.

If Russia does not pay the debt in dollars, it is not clear how the problem will be solved. By the time the 30-day grace period for April 4 bond payments expires, European Union sanctions will bar credit rating agencies from providing ratings to Russian entities and they will be unable to pass judgment on whether a breach has occurred. breach. . Companies are withdrawing all their ratings ahead of the EU’s April 15 deadline.

Last month, Russian Finance Minister Anton Siluanov accused countries that have frozen Russia’s foreign exchange reserves held internationally of trying to create an “artificial default.” Last week, the Finance Ministry said that if reserves were unfrozen, ruble payments could be converted into dollars.

S&P Global also said on Friday that it maintained its “CC” junk debt rating on Russia’s sovereign ruble debt (known as local currency debt) because it was unsure whether nonresident bondholders could access their bond payments. coupons.

According to documents on the Russian Finance Ministry website, bond coupons were being paid in local currency. But in March, Russia blocked interest payments to non-residents.

“Definitive information about the payment process is currently not available to us,” the agency said.

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