Credit rating agency S&P Global Ratings on Saturday downgraded Russia’s foreign currency payments rating to “selective default” after Moscow paid a dollar-denominated debt in rubles this week.
The agency does not expect investors to be able to convert the ruble payments to dollars equivalent to the amounts originally due or that Russia will convert the payments within a 30-day grace period.
Sanctions on Moscow imposed by the West over its invasion of Ukraine are likely to increase and hamper Russia’s “willingness and technical abilities” to honor its obligations to foreign creditors, the agency added in a statement.
Russia had met several interest payments in March after the US Treasury allowed foreign currency held by Moscow abroad to be used to pay external debt.
But the United States on Monday reversed course and only authorized Russia to repay its debt with dollars held in American banks, with JPMorgan blocking a payment.
Russia’s finance ministry on Wednesday announced it had made a payment of almost $650 million due on April 4 in rubles.
S&P Global Ratings’ “selective default” rating is used when a lender defaults on a specific class of obligations but meets other payments on time.
It maintained Russia’s rating for payments in rubles at “CC”, meaning debts are highly vulnerable to default.
Like all states, Russia borrows money in the form of obligations, often in dollars, and must regularly pay interest on top of the repayments.
A country is considered to have defaulted when it cannot honor its commitments to creditors, which can be states, institutions like the International Monetary Fund and the World Bank or investors on the financial markets.
Fitch and Moody’s, the two other major credit ratings agencies, had already stopped rating the debt of Russian companies and the government in accordance with EU sanctions.
S&P Global Ratings was due to follow suit by April 15 but announced on Saturday that it would do so immediately.