Guy Faulconbridge

LONDON, (Reuters) – Russia may have fallen behind after trying to pay its dollars bonds in roubles in response to Western sanctions. This was Moody’s (NYSE) statement that Moscow’s first default on foreign bonds since 1917 Bolshevik Revolution.

Russia paid a due payment on April 4, on two sovereign bonds that mature in 2022, and 2042. It did so in rubles rather than in dollars as required by the Securities Act.

Russia may therefore be considered as a default in Moody’s terms if they are not resolved by Thursday, Moody’s announced.

The bond contracts do not allow for the repayment of bonds in other currencies than dollars.

Moody’s reported that some Russian Eurobonds after 2018 may allow payment in roubles, but not those before 2018, such as those due in 2022 and 2042.

Moody’s reported that Moody’s argued that the investors failed to obtain the foreign currency contractual promise before the due date.

Russia stated repeatedly that it would like to service its debt. However, it countered by saying the West had prevented them from paying with crippling sanctions. This was after Vladimir Putin’s February 24 order for a special military action in Ukraine.

Russia defaulted in 1998 on its $40 billion domestic debt. President Boris Yeltsin devalued Russia’s rouble because Russia was insolvent after the Asian debt crisis. Falling oil prices and a falling dollar shaken Russia’s confidence in short-term rouble debt.

Russia is now in a financial crisis. Russia doesn’t have the cash but Russia can pay. The United States, the European Union, Britain, and Canada have frozen the Russian reserves, the fourth-largest worldwide, that Putin had ordered to be build up for such an emergency.

This could mark Russia’s first significant debt default in over a century. Russia took over its foreign debt even after the Soviet Union fell apart.

Vladimir Lenin, Bolshevik Revolutionaries of 1918, repudiated Tsarist Debt. This shocked global markets as Russia had then one of the largest foreign debt piles.

Tsarist note holders used the notes as wallpaper, even though the bonds were not worth anything. Following World War Two the Soviet Union, led by Josef Stalin, stopped paying loans to Sweden and the United States.