Russia About to Default on Sovereign Debt (Again)

Developing Story:

The Nikkei newspaper has released a very troubling if not totally surprising story, that Russia will ask foreign lenders to reschedule loans worth $400 billion, potentially the equivalent of a debt default depending on how it is structured. Just a reminder, the last time Russia defaulted on its bonds it set off a cataclysmic chain of events that terminated with Long Term Capital Management's implosion and the first major Wall Street mediated rescue of the financial system. This report has already caused the euro in early Japanese trading to drop significantly against both the dollar and yen (click on charts to enlarge).


(Euro/Dollar)


(Ruble/Dollar)

“European banks may face more financial difficulties, given the Nikkei’s report that Russian banks may negotiate a debt rescheduling,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank by market value. “It is natural that the euro is sold” to $1.27 and 117 yen today, he said.

According to Bloomberg:

The Russian Association of Regional Banks has submitted a plan for rescheduling loans to the Russian government, the Nikkei newspaper said, citing an interview with Anatoly Aksakov, the head of the association. The group is already in talks with HSBC Holdings Plc and Deutsche Bank AG, the Nikkei reported.

A $400 billion dislocation in credit markets is not what the global economy needs. However, we have no doubt that the equity market will have already factored this news and rise accordingly to new depression highs today.

Comments

[notsosmart:]

with russia's history why would anyone lend them money? doesnt anyone learn from history? its amazing how people will risk their hard earned money for a little extra gain.

Feb 10 08:40 AM

[scootie2008:]

the second rule of sovereign debt is:

"we do not default on sovereign debt"

Feb 10 09:32 AM

[ChipSeal:]

More fallout from the fall of oil prices. H. Chavez is no doubt feeling pressured too, as he has fallen behind in payments to western contractors. I haven't heard about conditions on the ground yet, but things must be grim in Mexico as well.

"However, we have no doubt that the equity market will have already factored this news and rise accordingly to new depression highs today."

We shall see.

Feb 10 09:38 AM

[auto44:]

For a while it seemed that Russia had changed and rights of all kind were going to be protected. As of late though it is appearant that not only are property rights and the rule of law abused in the country, their actions in Georga, The Ukraine, and other places both overt and covert indicate that not much has changed.
That aside, this shows how far the credit mess, deleveraging, and the rusulting commodity price plunge extends. Remember the big joke going around,that our financial mess was not going to effect the rest of the world. It now seems that the European banks are in worse shape than american banks. Not only did they invest heavily in our crappy mortgauges, they invested poorly and heavily in the emerging markets who are now having trouble paying them back.

Feb 10 10:08 AM

[kelm:]

I think we can expect multiple sovereign debt defaults or restructurings to occur this year. As noted above there are many emerging and developing markets that are under huge stress and the massive debt offerings coming to market from the US and Europe are already freezing them out of new financing.

Feb 10 10:08 AM

[Gtarras:]

Fact: Russia has about $17 billion in sovereign debt spread out for five years
Fact: Currently it has $350 billion of reserves
Fact: $400 billion is the debt all Russia PRIVATE companies have with maturity date of 5 years
Fact: Most of these comapnies are oil, gas and minerals


Most important fact to take from the above facts:

SOME BLOGGERS DO NOT DO THEIR

Feb 10 11:13 AM

[Gtarras:]

HOMEWORK

Feb 10 11:13 AM

[Hefaistos:]

1. The Russian state has very little debt, after repaying most everything that was borrowed
2. A rescheduling is not a default. It is just a way to survive your debt load until cash flows turn positive again. Russian companies are basically ok, they suffer from depressed raw materials prices. But anytime, all the stimulance packages and bailouts will be enough to get growth going again, and oil prices etc will rise, saving those companies. Thus, a rescheduling is the right thing to do.

Feb 10 11:53 AM

[scootie2008:]

The third rule of sovereign debt is:

'If a sovereign says "stop" or goes limp, or is tapped out the borrowing is over.'

Feb 10 12:21 PM

[k9s-4-k8:]

Russia cracks me up. One minute they're lecturing others on how to run a country and financial system, the next thing they're seeking a reprieve from their creditors. If other countries are willing to lend Russia billions, they're going to have to lend me a billion too. I'm a much better credit risk than they.

Feb 10 12:42 PM

[Jason Rines...:]

The Russian Bear will be the willing instreument of destruction in the final World War coming most likely by 2015. A regional conflict in the Koreas will spread into the Sea of Japan and ignite from there. This is an end of an age and a start of a new one. Like a newborn baby being born, the baby is beautiful but the labor pains get intense. But that's a story for another day.

Feb 10 12:47 PM

[Conan the B...:]

Jason: my thinking was end of 2012.

Who will align with whom?

Feb 10 03:31 PM

[chris1273:]

most of the comments on this blog are ridiculous, first of all, like of the commenters already stated, 400 billion is the amount of all private debt in Russia (see: private companies) the government holds very little debt and to the trained eye, something obviously missing in who ever posted this, the government is playing a game of wait, whichever company fails to restructure loans and asks for government help falls under government control, virtually being nationalized. so keep on wishing for Russia to fail, its funny how one can see the straw in someone elses eye but keep on missing the bunch of them in theirs (huge banking and government fraud in our so called capitalist countries)

Feb 10 04:59 PM

[iyamwutiam:]

Chris is correct on the biblical quote of seeing th mote in another's eye but failing to see the beam in one's own. As has been correctly pointed out - most of the debt is 'private' debt and per se should have little bearing on Russia's own credit rating. However- we do know that the Euro/US cartel in banking would love to use this opportunity to wreak havoc and continue to maintain hegemony through the artifice of credit creation.

The Russians are guilty of one thing. They like some investors jumped in too soon. Had they waited till this year the cost of retrieving their assets (from the days of Gorbachev and Oligarchs) would have been much less. Regardless- to re-possess State assets which were developed with taxpayers' dollars for decades and then sold for a pittance due to a collaborative approach by western banking interests and connected corrupt oloarchs is a necessary step.

Venezuela, Bolivia, Russia, Phillipines, Panama, etc have all shown that privatization of publicly funded industries, infrastructure etc leads to net capital outflows from the countries involved- this has been proven even in India -where FDI showed exporting of wealth -not as presumed increased domestic wealth.

Te banking hegemony is doing all they can to increase panic and doomsaying to leverage this moment to hold on to the illsion of wealth. Russia may be pressured inordinately as Putin has already talked to banks about debt forgiveness for certain countries. The logic it seems is that if yu can write down amounts connected to MBS, CDS etc and are getting government bailouts -why not loans made to Russian countries.

Someone will step in and nationalize these companies and default on their corporate debt. They hope its not Russia - whoever does so - shall start a global process of many countries annexing their core industries and defaulting on the corporate debt.

Feb 11 11:15 AM