The European stock exchanges close tonic, driven by the draft of the peace plan between Russia and Ukraine
Russia is unable to pay coupons on maturing bonds to foreign investors: the countdown has officially started for what is likely to become a huge debt default that would bring the country to its knees with global ramifications. The Russian Ministry of Finance said it had issued the order for the payment of the 117 million dollars owed to the bondholders of the two Eurobonds, which must be made in dollars. But he also acknowledged that that money “may not reach the bondholders”. And indeed some of the investors to date have not received the sums due. Technically, however, there is a ‘grace period’ of 30 days which gives time until April 15 to avoid the official declaration of default. It would mean insolvency, would trigger the country-risk insurance contracts, a flurry of immediate repayments impossible for Moscow, which would become a pariah of the financial system like Argentina. Another earthquake for an economy already throttled by Western sanctions, 10% inflation and the costs of the war in Ukraine. But also, potentially, for the world economy. Moscow’s foreign currency debt alone amounts to $ 150 billion. And since Russia, until before the war, had a rating with an investment level (therefore not speculative), those bonds are in the hands of investment funds around the world, insurance companies, pension funds: not just hedges fund. A time bomb that is public debt for only 40 billion: the bulk is made up of bonds from Russian companies popular with Western investors such as Gazprom (over 28 billion), Russian Railways (almost 5 billion), Rosneft and Lukoil (2.5 and 2.3 billion respectively), leading banks such as Vtb and Alfa Bank (2.3 and 2.1 billion), Vnesheconombank (3.8 billion), Sberbank (3 billion). The stock exchanges paid more attention to the glimmers of a negotiated solution to the war: Milan in strong rise (+ 3.34%), like Paris (3.68%) and Frankfurt (+ 3.76%), Btp-bund spread in drop to 150. After all, the Russian default is a bit artificial: it is not that Moscow has no money, it is that the war has spread to the economy, sanctions have seized more than half of Vladimir Putin’s foreign exchange reserves, which responded by blocking foreign currency flows. For the Russian president, this is the argument to say that it is the US and the EU that have “defaulted” to Moscow: it is they who have “actually failed”. Even the Minister of Finance, Anton Siluanov, admitting that the payment of the two bonds maturing in 2023 and 2043 “may not reach the investors”, tried to throw the ball on the opponent’s court: the payment would have been forwarded but the bank holding the accounts in foreign currency it could not pay it across the border, and now it depends on the US authorities. Moscow continues to finance itself at the rate of half a billion a day with gas sales to Europe. It would also have 17 billion in special drawing rights to the IMF, which US and EU pressures have not yet been able to block. But how the risk-insolvency is taken seriously by investors (and constitutes an effective Western lever towards Moscow) is testified by the rating agency Fitch, which warned: the payment in rubles “would constitute an event of default”. And it brought the redde rationem closer to April 2, because not even the coupons of the Russian Ofz bonds expired on March 2 did not reach foreign investors. A threat that is beginning to agitate the Russians: after all, it is Putin’s own reassurances – “the nation’s economy will certainly survive” and the chaos of 1998 will return – to reveal Moscow’s fears.
As far as raw materials are concerned, both oil and gas have reversed course, after an upward start. Brent is down 0.6% and is below $ 100 (99.3) a barrel. The WTI records a drop of 0.5% and is close to $ 96 a barrel. The price of gas in Amsterdam falls to 110 Mwh, after an opening at 117, with a decline of 4.13%. In London the price is 266 pence per Mmbtu thermal unit with a 3% drop. Among metals, nickel returned to trading in London, losing 5%. Trading lasted a few seconds and due to a technical problem relating to the 5% downward ceiling on prices, trading was once again suspended. On the foreign exchange front, the ruble is recovering. The Russian currency which before the war in Ukraine traded at 75 on the American currency, is exchanged at 100 on the greenback and at 110 on the euro which in turn changes hands at 1.10 on the dollar.
The price oforo is slightly down. The metal with immediate delivery is quoted at $ 1,915, down 0.15%.
–
