Russian state-owned companies edge closer to debt defaults as sovereign bonds near the brink

• Sanctioned Russian bank VTB made coupon payments in rubles for holders of euro- and dollar-denominated bonds.
• Russian Railways, another state-owned company, is also struggling to make debt payments, according to Reuters.

Sanctioned Russian bank VTB doled out coupon payments in rubles to holders of euro- and dollar-denominated bonds, the National Settlement Depository announced Tuesday.

Credit rating agencies have warned that using rubles to make payments on bonds priced in foreign currencies would be grounds for a default.

State-owned VTB is Russia's second largest bank, and Western sanctions in response to Moscow's war on Ukraine have largely cut it off from the global financial system.

Meanwhile, other Russian companies are facing issues paying their bondholders, too. State-owned Russian Railways said it wasn't able to make interest payments on Swiss franc bonds, according to Reuters.

And diamond producer Alrosa, which is partially owned by the Russian government, applied for a special license to allow it to make coupon payments on a $500 million Eurobond, Reuters also reported.

Turmoil in Russian corporate debt comes as the Kremlin moves closer to defaulting on its sovereign debt.

Late Monday, the US Treasury blocked Russia's attempt to pay more than $600 million due on sovereign bonds. Previously, the Treasury had been allowing American banks to process the payments so that money would reach US bondholders.

"Beginning today, the US Treasury will not permit any dollar debt payments to be made from Russian government accounts at US financial institutions," a spokesperson for the US Treasury said.

BlueBay strategist Timothy Ash said a "nightmare" Russian debt default is now very likely after the US's move.