Russia on the verge of bond default triggering financial chaos: report
According to a report from Business Insider, Russian President Vladimir Putin's decision to invade Ukraine -- triggering a wave of financial sanctions -- is about to hit home as the country faces bond defaults which will create chaos in both the courts and in the financial community.
The report states the inability of Russia to use American banks has tied Russia's hands and there are few alternatives available.
"Russia failed to make $650 million of bond payments on Monday. Instead, it transferred the money to its National Settlement Depository in rubles, despite the contracts demanding payment in dollars," Business Insider's Harry Robertson wrote. "A default would likely unleash a long and complex battle between bondholders and the Russian state, although the Ukraine war and Western sanctions complicate matters."
According to University of Virginia Law Professor Mitu Gulati, an expert on foreign debt, the inability to make a payment is about to plunge the country into "litigation chaos."
Explaining, "I think that Russia is surely not going to be able to get the money to bondholders. The question is whether that counts as a default or not," he added, "This will be more complicated. Because usually, just the bondholders would form a committee, and they would negotiate with the country, and the IMF would make an estimation of how much they can pay. Now this time, we're going to have to figure out, essentially, war reparations like who's going to pay for Ukraine's reconstruction."
"Russia has a lot of foreign assets, but the number of claimants on those foreign assets is multiplying at an exponential rate. Legally, you will have an advantage over others if your claim is first," he continued, " Now on the flipside of that, Western governments understand that this game is afoot. I will bet everything in my very small bank account that they are making plans to deter people from chasing these assets, saying, 'Look, nobody's going to get ahead of anybody else by getting judgements'."
The professor explained that any defaults could have a long-ranging impact.
"These are the worst-written contracts I have ever seen on the international markets. They give so many advantages to Russia," he told Business Insider. "If I were an investor, I would just be like, 'Oh, my goodness. How is it possible that I have a debt contract that says Russia has the option to pay me in rubles? I didn't mean to agree to that'."
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