Sovcombank, the country's ninth largest, was to make scheduled interest payments on Thursday on four dollar-denominated eurobonds, provided by Sovcom Capital DAC. But it has been blocked by both Western sanctions and some of Russia's own capital restrictions.
The privately owned lender has been blocked from using SWIFT, the global interbank transfer messaging system. The U.S. Treasury has prohibited the bank and other Russian borrowers from making dollar debt payments with funds from U.S. bank accounts.
Similar restrictions by the U.S. and other Western governments have frozen bank assets held in Western banks, including the Russian government's foreign currency reserves. Moscow, meanwhile, has imposed capital controls that sharply restrict the transfer of dollars and other hard currency from Russian accounts.
"Currently, Sovcombank, due to sanctions imposed by the United States and other countries, as well as retaliatory restrictions from the Russian Federation, does not have the technical ability to dispose of blocked assets and fully use the international payment infrastructure to service loans," the lender said on its website.
It added that until the sanctions are lifted, it will temporarily suspend interest payments on the loans.
Sovcombank expects to be able to transfer interest payments for two of the eurobonds registered at Russian depositories within a few weeks. This process is expected to begin once Sovcombank has developed a mechanism with Russian regulators.
Two eurobonds are listed with international depositories, such as Euroclear. The bank said it is working with regulators of all the countries involved to develop a method to make bond payments, but did not specify when this would be accomplished.
The bank is one of a growing group of Russian institutions struggling to service debt payments after Western governments cut the country off from the global financial system.
Moscow announced on Wednesday it was forced to make a scheduled $649.2 million bond payment on foreign dollar bonds in rubles, prompting speculation Russia would default on its sovereign debt.
--Additional reporting by Najiyya Budaly. Editing by Joe Millis.
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