Karin Strohecker & Sujata Ro

LONDON, (Reuters) – Russia paid interest on two sovereign-dollar bonds. This eased doubts over Russia’s willingness and ability, however, investors will be cautious due to a hectic payment schedule.

Russia’s failure to pay the debt could have resulted in Russia’s first default on its external bonds for more than 100 years. This was a crucial test following sanctions aimed at punishing Moscow for its invasion and occupation of Ukraine.

Russia’s finance minister said that it has fulfilled all its obligations on Friday. Multiple sources involved in the multistep $117 million payment of coupon coupons confirmed that the money was on its way to creditors.

Some European bondholders claimed they had received money due in U.S. Dollars, and two Taiwan creditors told Reuters that the funds are being remitted.

According to a source, “The payment for both coupons was made.”

Russia allowed a grace period of 30 days for payment. The coupon payments were due Wednesday.

The news of the payment lifting Russian bonds prices saw the 2043 bond (one of the issues for which there was a coupon), rise to 45c in USD.

The trading volumes weren’t as high, but it was a notable improvement on the 12 cents record set March 8th.

Graphic: Russia’s government bond rally after crucial payments: https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkoxglvx/Pasted%20image%201647602080627.png

Russia holds around $40 billion worth of foreign bonds, with half being held by foreign investors. The payments received by Russia’s foreign holders of these bonds (which include many of its largest lenders) are not known.

Russia has to pay this week’s payment as a first step in preserving the complicated web of Russia’s borrowing.

International bond payments will be made next on March 21st with a coupon of $66 Million. This also has a grace period of 30 days.

Problem is, this issue, which was issued in dollar, contains a provision that permits payment in alternate currencies like the euro, pound or Swiss franc.

Because Russian bonds issued in 2014 after Russia’s annexation and subsequent sanctions have a clause for payment in alternate currencies

As an alternative currency, the rouble will be listed for any bonds purchased after 2018.

Jonny Goulden (NYSE: JPMorgan) advised investors to keep an eye on upcoming payments. He said they could be treated differently because the bonds were cleared through the Russian NSD settlement process or because the bonds have a rouble fallingback as a payment currencies, which may make it difficult for the Russian government to pay in roubles.

Russia has to spend an additional $615million in coupons up until the end March and over $4.5B in coupons and maturities through the year.

When a bond worth $2 billion matures, the first principal payment will be due April 4.

In the meantime, there have been questions about the source of the funds for the payment.

The U.S Treasury imposed sanctions in February that “immobilized” large amounts of Russia’s foreign currencies reserves. Analysts speculate that sanctioned funds may have been used to pay this week’s payment, but Russia generally pays its debt using budget funds.

General license 9A was issued March 2, by the U.S. Office of Foreign Assets Control. It allows U.S. individuals to receive interest, dividends, or maturity payment in connection with Russian debt or equity.

The exemption ends on May 25th, but it leaves in place nearly $2Billion worth of external sovereign bonds payments. This deadline is also extended until the end of the year.