LONDON (Reuters – Russia is set to pay another bondholder payment Monday in dollar, a move that comes after it defied fears last week about not being able or willing. It did so despite unprecedented Western sanctions against Moscow over its actions in Ukraine.

Russia’s payment of external creditors last week was its first default since the 1998 financial crisis. It also marks its first international bond transaction since the 1917 revolution when the Bolsheviks renounced obligations under the Tsarist government.

There are more tests ahead with Russia set to pay $66 million Monday, and $4.7 billion total between now and the end of this year.

What HAS HAPPENED?

Russia holds 15 outstanding international bonds, with a face worth of about $40 billion. Before the Ukraine crisis, around $20 billion had been held by money managers and investment funds outside Russia.

Drama last week revolved around two bonds issued by the government in 2013 for interest or coupon payments. These were due Wednesday at just over $117million.

Moscow was allowed to make payment within a period of thirty days, as with other international bonds.

Initially, Russia seemed to balk at the prospect of sending scarce hard currency overseas, but on March 14 the finance ministry said https://minfin.gov.ru/ru/press-center/?id_4=37805-utverzhden_vremennyi_poryadok_ispolneniya_gosudarstvennykh_dolgovykh_obyazatelstv_rossiiskoi_federatsii_v_inostrannoi_valyute it had approved a temporary procedure to make the payments.

The temporary license from the U.S. Office of Foreign Assets Control was granted to Russia’s correspondent banking JPMorgan (NYSE) to be able to receive the cash and credit it to another U.S. Bank. Citigroup The paying agent is (NYSE:

Citi reviewed the details and gave it to bondholders. Sources said that the bonds had been received by Citi on Thursday and Friday.

THE NEXT TEST

Additional tests continue to come in thick and fast. Russia will make $66 million in payments Monday. However, technically it can make the payment under the terms and conditions of the issue – along with a $102million one on March 28, – in alternative currencies such as rubles.

Gramercy is an emerging market fund manager. It noted that in order to make use of the bond’s “alternative payments currency event”, it required a notice for 15 days. This notice was not published by Russia’s finance ministry.

Russia showed willingness and the ability to pay dollar after last week’s payment Morgan Stanley Analysts at the NYSE stated that Russia had no legitimate reason to invoke the alternate rouble payment clause. However, that doesn’t mean that Russia will not try.

There is an April 4th payment due of $447million. The largest of its payments for the year is its $2 billion first “principal” repayment.

JPMorgan estimates that $38 billion in rouble denominated sovereign bonds, known as OFZs (or foreign investors) was also held by foreign investors. That market represents nearly 20%. They haven’t yet made some of their payments.

CAN RUSSIA GO ON PAYING?

It is possible that Russia will not pay even if they are willing. This includes bonds which must be paid in dollars.

Western sanctions ban transactions with Russia’s finance ministry, central bank or national wealth fund, although the temporary general license 9A https://home.treasury.gov/system/files/126/russia_gl9a.pdf issued by OFAC on March 2 makes an exception for the purposes of “the receipt of interest, dividend, or maturity payments in connection with debt or equity”.

However, the license ends on May 25, and Russia will have approximately $2 billion of foreign sovereign bond payments left to make before end of year.

Morgan Stanley analysts state that, after Monday’s tests, May 27th is the crucial date. That’s when the first payment will come due once the licence expires.

This could make Russia pay for bonds in the dollar and euro 2026 dollars. The payments would then be made in roubles that can be transferred to offshore accounts.

As only the euro bond can allow payment in rubles, this would result in default for the dollar bond.

Morgan Stanley analysts believe that the GL9A license could be extended. However, this would require a substantial move toward de-escalation.

Some analysts believe that the money abroad frozen under sanctions might have been used to make last week’s payments. However, Russia has always paid off its debts using the budget funds.

WHAT WILL HAPPEN, IF IT DON’T PAY?

Russia will default if it fails to pay its bonds within the grace period or pays in rubles where dollars and euros are specifically specified.

This kind of event is unimaginable prior to the February 24 invasion in Ukraine. Moscow calls it a “specially military operation” and there were subsequent sanctions.

Russia’s central bank has close to $650 trillion in reserves. It has one of lowest debt-to–GDP ratios in the world. Russia is also making money due to soaring prices for oil and natural gas.

A default would prevent it from accessing international borrowing markets, until sanctions are lifted. Then it would repay any creditors who suffered losses.

This would depress Russia’s credit rating for a while, increasing the interest rates that the Russian government can borrow and large Russian corporations.