S&P downgraded Russia’s credit rating to ‘CC’ from ‘CCC-‘ on Thursday, citing the country’s inability to satisfy debt payments due on its dollar-denominated 2023 and 2043 Eurobonds.

According to the ratings agency, Russia’s payment problems come from international sanctions imposed in response to Moscow’s invasion of Ukraine. The restrictions have diminished the country’s foreign exchange reserves and limited its access to the international financial system.

“Although official statements from the Russian Ministry of Finance indicate that the government is still attempting to transmit the payment to bondholders,” the agency added, “we believe that debt service payments on Russia’s Eurobonds due in the coming weeks may suffer similar technical challenges.”

Peer organisations Concerns about Russia’s capacity to meet its obligations were also raised by Fitch and Moody’s. Its debt obligations when cutting the country’s rating by several notches earlier in March.

Fitch stated on Tuesday that if the coupon payments are not made in US dollars by the end of a 30-day grace period, Russia’s ratings will be further reduced to “restricted default.”

According to Refinitiv data, Russian bonds are lingering around profoundly distressed levels in extremely illiquid trading, with most issues trading less than a handful of times each day.
An exception that presently allows U.S. citizens or residents to receive Russian debt and equity payments will expire on May 25, adding to Moscow’s debt woes.

Russia is set to pay approximately $2 billion more on its external sovereign bonds after the sanctions exemption deadline and until the end of the year.

Two market sources told Reuters on Thursday that some creditors have received payment in dollars for Russian bond coupons that were due this week. According to the report, several other creditors have not yet received their payments but are hopeful that they will soon.