Russian steel giant Severstal is on the verge of default after it said Citigroup froze interest payments

• Russian steelmaker Severstal is edging closer to default after it said Citigroup froze its debt payment.
• The company made a $12.6 million payment that has yet to be distributed to investors, according to a report.

A major Russian steelmaker is on the verge of default after its debt payment was frozen, the Wall Street Journal reported.

Severstal, based just north of Moscow, made a $12.6 million interest payment on a dollar-bond to a Citigroup unit that distributes the money to investors, the Journal reported. That payment — which was due March 16 with a five-day grace period ending Wednesday — was frozen because of "regulatory investigations," the company said, adding that it was committed to meeting its debt obligations.

Citigroup, the paying agent, declined to comment on the matter to Insider and the Journal.

The looming default is the latest headache for Russia's corporations and its oligarchs, which have been largely cut off from the global financial system as a result of Western sanctions responding to Putin's war in Ukraine.

Another steelmaker, Evraz, said it faces a technical default on its loans because it's likely that its latest payment was blocked because of sanctions against its biggest shareholder, Russian oligarch Roman Abramovich. Severstal, for its part, is majority-owned by major Russian billionaire Alexey Mordashov, who was listed as part of sanctions from the European Union, the Journal said.

Russia' credit rating has been slashed deep into junk territory with a growing risk of default. It has continued making payments to its bondholders despite sanctions which blocked it from accessing about half of its $640 billion in foreign currency reserves.

Last week, the country made a $117 million payment that was permitted to go through, and this week, it made another $66 million payment. Despite those payments, Russian corporate and sovereign bonds have plummeted in value, an indicator that investors are still concerned about a wave of corporate credit defaults.