Russian Railways first to officially default due to Western sanctions

For the first time since the start of the Ukraine war, a Russian company has been officially declared in default of its debt payments after Western sanctions obstructed Russia’s access to the global financial system.

The state-owned Russian Railways failed to make interest payments on $268 million of bonds that were due in March, causing the International Swaps and Derivatives Association (ISDA), a global financial committee that determines when default insurance must be paid out, to announce on Monday that the company is now considered in default.

The decision was made by ISDA’s Credit Derivatives Determinations Committee for the Europe, Middle East and Africa region, which said that “a Failure to Pay Credit Event occurred” in connection with a Swiss franc bond issued by RZD Capital to finance a loan for Russian Railways.

The company for its part said on Tuesday that it had met its obligations but that the money didn’t reach creditors because intermediaries blocked the payments as a result of sanctions against Russia, according to Bloomberg. Another Russian Company, EuroChem, has missed payments for the same reason and is technically in default as well.

The Russian government is headed for a similar situation after the United States blocked Russian government debt payments with US dollars from accounts at US financial institutions. Last week Moscow entered a technical default on two payments that it tried to make in rubles. Ratings agencies have described this as a technical default, although Moscow has a 30-day grace period to make the payments or it will officially enter into default for the first time since 1998.