Russian Railways becomes first company to officially default in the country, as Western sanctions jam the financial system

• Russian Railways has become the first company in the country to official default on its debts since the Ukraine war began.
• A global financial committee ruled on Monday it had failed to pay coupons on $268 million of bonds, due March 14.

A global financial committee has ruled Russian Railways has tumbled into default after the company failed to make interest payments on $268 million of bonds, due to Western sanctions that have stymied Russia's access to the global financial system.

The European section of the Credit Derivatives Determinations Committee ruled on Monday that the state-owned company had failed to make interest payments on the bonds due on March 14.

It made Russian Railways the first official corporate default in the country since the invasion of Ukraine began in late February.

The CDDC is a committee of financial institutions who meet to decide whether a company has defaulted. A ruling from the committee is a key step in allowing investors in credit-default swaps — contracts that act as insurance against defaults — to receive payouts.

Despite the ruling, Russian Railways argued in a statement on Tuesday that it had fulfilled its obligations on the Swiss franc bond worth $268 million, as it had tried to pay but had been blocked due to sanctions, Bloomberg reported.

The ability of Russia's companies and its government to pay their foreign-currency debts has been seriously curtailed by Western sanctions put in place after Vladimir Putin's invasion of Ukraine on February 24.

The US and its allies have frozen the central bank out of the bulk of its roughly $600 billion of foreign currency reserves and directly sanctioned companies, including Russian Railways.

Last week, the US Treasury blocked the government from making dollar debt payments using accounts at American banks, further freezing the two countries' financial relationship.

Goldman Sachs, Bank of America, and Deutsche Bank were among the institutions to vote "yes" on the motion that Russian Railways had defaulted on its debts, CDDC documents show.

Russian Railways said in Swiss filings in March that it had tried to make the payments, but had been blocked due to "legal and regulatory compliance obligations within the correspondent banking network."

A similar debate is raging over whether the Russian government has entered default, after it attempted to make $650 billion of payments on two dollar bonds last week, but was blocked by the US Treasury.

The CDDC has been asked to rule on whether the Russian government itself is now in default. Russia still has 22 days remaining of a 30-day grace period in which to make the payment in dollars, although ratings agency S&P has said such an outcome is unlikely.

Read more: 8 investing experts share their markets outlook for the French election — including how a shock Marine Le Pen win could impact stocks and bonds