The Russian government has approved the list of “Hostile countries“. A real black list of Putin which includes all the states that have imposed sanctions on Russia or have supported them. Thus the Russian president reacts by dividing the foreign creditors of the Russian debt into two categories: the bondholders of countries that have sanctioned Russia and all the others. In addition to all the countries of the European Union - including Italy - the list also includes the USA, the United Kingdom, Australia, Iceland, Canada, Liechtenstein, Monaco, New Zealand, Norway, the South Korea, San Marino, Singapore, Taiwan, Montenegro, Switzerland, Japan and of course the Ukraine. The measures taken are intended to demonstrate Russia's financial stability in the face of pressure from external sanctions, but the decree has sent the cost of insuring Russian government bonds against the risk of a default.
The decree falls within the so-called "provisional procedure for the fulfillment of obligations towards foreign creditors". According to the document, all creditors from these countries to the Russians can be repaid only in rubles but no international counterpart would accept being settled in a currency whose value has plummeted to an all-time low. While all the others will be able to receive payments in foreign currency with a special permit.
But the problem is not so much Moscow's "economic sanction" as his own political significance given that it puts "in the circle of villains" all the countries opposed to Moscow's cause, guilty according to the Kremlin of having carried out "hostile actions against Russia".
The decree approved by Moscow against "hostile countries"
According to the decree approved by the Russian government, "the state, citizens and companies that have obligations in foreign currency towards foreign creditors that fall under the list of hostile countries will be able to pay in rubles". In addition, all transactions and operations of Russian companies with citizens and companies of listed countries will be approved by the government commission for monitoring foreign investments.
“A company resident in Russia or a foreign company from the list of hostile countries must apply for permission to deal, providing full information on the applicant, including a document on the beneficial owners of the company. Based on an analysis of the documents received and the nature of the future agreement, a decision will be made on whether to approve or refuse to implement it. In this case, permission to conduct an operation may be issued, indicating the conditions for its execution,” the document reads.
Splash the risk of Russia's default with Putin's Blacklist
According to Bloomberg, based on data from Ice Data services - the main clearinghouse for European CDS - the probabilities of a default implied in the cost of debt insurance they reached the record level of 80%.
The CDS that insure $10 million of Russian debt for 5 years cost $5,8 million in initial commission, plus $100 a year.
With Putin's decree, Moscow can repay Russian government bonds denominated in foreign currencies in rubles if the holders belong to the countries on the list. But not all foreign currency bond settlements can be paid in rubles. In fact, in the event of payment in rubles for these bonds, the so-called "trigger event" could occur, the event which determines the default and which allows the CDS holders to be reimbursed by their counterparty. Among the bonds that do not allow this possibility are some bonds maturing on March 16th on which coupons for as much as 117 million dollars must be paid.
