Amid widespread concerns of cascading Russian defaults, Gazprom creditors breathed a sigh of relief this morning on the news that the Russian energy giant had made a coupon payment on bonds due today. According to Bloomberg, some holders of a $1.3 billion Gazprom PJSC bond due Monday said they received payment in dollars, even after Russian President Vladimir Putin gave issuers the option of repaying foreign-currency debt in rubles.
Bondholders said they received cash to pay off the bonds Monday, according to the people with knowledge of the payments, who declined to be identified because they aren’t authorized to speak publicly about the matter.
News of the coupon payment sent the price of the bond sharply higher after crashing to 50% of par last week and was repaid at par today.
This is wild. I’ve never seen anything like that in my life.
The bond was due today. Traded at 0.5% yield for a year.
Crashed to 50% par.
Repaid at par today.
* GAZPRU 6.51 03/07/22$ ↑ 50.000
*GAZPROM CREDITORS SAY THEY RECEIVED PAYMENT FOR BONDS DUE TODAY pic.twitter.com/pUOpRv6lWo
— JohannesBorgen (@jeuasommenulle) March 7, 2022
However, the hopeful mood was promptly dashed following a report from Morgan Stanley’s Simon Waever who wrote that the odds of Russia making its foreign debt payments is diminishing as bond prices fall, recession in the nation looms and various payment restrictions pile up after the invasion of Ukraine.
“We see a default as the most likely scenario,” Simon Waever, the firm’s global co-head of emerging-market sovereign credit strategy, wrote in a Monday note. “In case of default, it is unlikely to be like a normal one, with Venezuela instead perhaps the most relevant comparison.”
Waever believes that the default may come as soon as April 15, which will mark the end of a 30-day grace period on coupon payments the Russian government owes on dollar bonds due in 2023 and 2043.
According to Bloomberg, Russian bonds due 2023 are trading at around 29 cents on the U.S. dollar, though there appears to have been no trades at those levels. In the days before Russia invaded Ukraine last month, both bonds were trading above par.
While it is rare for sovereign debt to tumble to the single digits, Morgan Stanley said Russia’s bonds “could get close.” Lebanon and Venezuela are the only recent examples of a country’s debt slipping so low.
“The potential for significant further selling will put additional downside pressure on prices,” Waever wrote. “We see very little incentive for any investor to step into Russian sovereign bonds at this point.”
As discussed yesterday, a default could be tied to Russia’s unwillingness to pay foreign creditors because of sanctions imposed by the U.S. and its allies. There is some uncertainty surrounding whether U.S. banks will be allowed to accept coupon payments from Russia’s Ministry of Finance, according to Morgan Stanley. Payments to foreign investors will depend on sanctions introduced against Russia and “exemptions established by the relevant licenses and permits,” according to the Finance Ministry in Moscow.
Growing speculation that a Russian default is coming has propelled Russian CDS to a record 2,757 bps, up from 2,619bps earlier in the day according to IHS Markit.