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Russian companies: payment defaults on the rise

Published May 23, 2022 - 3 mins reading time
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Impacted by Western sanctions following the invasion of Ukraine, Russian companies find themselves cut off from the international financial system. As a result, payment defaults are multiplying and have now reached $14 billion.

14 billion dollars of debt in default

In early March, the first Russian group to default was Russian Railways, which had not paid the coupon on a bond before the end of the grace period.

Since then, some twenty Russian companies have defaulted, including Severstal. The steel giant was unable to pay its investors $800 million in interest on time.

According to Bloomberg, the total amount of payment defaults by Russian companies currently stands at $14 billion. Yet it is not financial resources that these companies lack, but international sanctions that prevent them from making payments.

Funds are blocked by European or American banks in application of sanctions, and companies or their executives are blacklisted.

Russian government to default on payments

The majority of defaults have come from Russian banks: Alfa Bank and VTB Bank alone account for $6 billion of defaulted debt. But many other sectors are also affected, such as fertilizer producers and mining companies.

Potash producer Uralkali and several other companies in the sector have accumulated $1.7 billion in defaults, while mining giants such as Alrosa and Nordgold have defaulted on $1.2 billion in debt. As long as international financial sanctions remain in force, Russian companies will remain in default, blocking the inflow of new capital and preventing them from refinancing.

Until now, the Russian government has benefited from an exceptional arrangement enabling it to make payments in dollars, even though since the beginning of April it has no longer been able to use the dollar funds held in its accounts in American banks.

However, as of May 25, the US Treasury is set to end this exception, blocking a $100 million interest payment due from the Russian state on May 27. Moscow should therefore be officially in default 30 days later, at the end of the grace period.