Dividends and Russia warns sovereign bond holders that payments depend on sanctions

Imagine if you were an analyst looking at the state of Russia a few months ago, while the politics may not be your cup of tea, the leading corporations and government does generate cash from the oil and gas prices. Slowly prices have been going up as the world reopened from the pandemic. Russia bonds paid in dollars, euros, British pounds or Swiss francs and Moody’s had rated the bonds as BBB. Then President Putin sent the army to Ukraine and western world imposed heavy financial sanctions.

In an article by Guy Faulconbridge adn Karin Strohecker of Reuters, Russia said sovereign bond payments will depend on sanctions imposed by the west, raising the possibility of a major default. Russia’s Finance Ministry said it would service and pay sovereign debts in full and on time but that payments could be hampered by the international sanctions.

Russia has $630 billion in reserves but it is held at western banks and is frozen by sanctions.

Russia in 1998 defaulted on $40 billion in domestic debt and devalued the ruble.

In 1918, the Bolshevik revolution under Lenin defaulted on Tsarist debt. At the time, Russia was one of the largest foreign debt in the world.

The Soviet Union under Josef Stalin stopped servicing loans to the US and Sweden after WW I.

Russia has $40 billion in international bonds outstanding across 15 dollar or euro denominated issues. However corporate debt is much higher. On March 16, Russia is scheduled to pay $107 million in coupons across 2 bonds. The next full payment is $359 million on March 31 and $2 billion maturity on April 4. The total bond market in Russia is worth about $200 billion.

Gazprom has a $1.3 billion dollar bond due for repayment on March 7.

With the imposition of sanctions, Moody’s changed Russia ratings from BBB to Ca or junk status until sanctions are over.

Linking to dividend paying stocks, people around the world are doing analysis on a regular basis and normally for an organization that has reasonable ratings, cash in the bank and expected higher revenues in the future, that would be a good thing. You would risk your money because of the long term return, but some events are revenue changing and some are not. The western world imposing sanctions on Russia is a good thing for the world in generate, but there are consequences and hopefully if the war is over sooner than later, it is price to be paid.

There are more questions than answers, till the next time – to raising questions.

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