©Reuters. FILE PHOTO: A Russian state flag flies over the Central Bank headquarters in Moscow, Russia March 29, 2021. A sign reads: “Bank of Russia”. Reuters/Maxim Shemetov/File Photo
by Emily Chano
TAIPEI (Reuters) – Some Taiwanese holders of Russian eurobonds did not receive interest after a grace period on Sunday evening, setting the stage for external sovereign defaults on the 27th.
Russia was due to make a $100 million coupon payment on May 27 on two Eurobonds — $29 million on euro-denominated 2036 bonds and $71 million on dollar-denominated 2026 bonds.
Widespread sanctions by Western capitals against Russia following the Feb. 24 invasion of Ukraine, as well as countermeasures by Moscow, have isolated the country from the global financial ecosystem. Russia called its actions in Ukraine a “special operation”.
Despite the plethora of sanctions, Russia had managed to make payments on seven bonds before the last interest payment since invading Ukraine.
Moscow has been scrambling to find ways to deal with pending payments and avoid defaults in recent days.
President Vladimir Putin signed a decree last Wednesday giving the government 10 days to start interim procedures and select banks to process payments under a new plan, suggesting Russia may consider meeting debt obligations if it has bondholders paid in rubles.
One of the Taiwanese sources told Reuters that “no ruble clause attached” to the two eurobonds.
“The coupon cannot be paid in rubles,” the source said.
Russian debt accounts for less than half a percent of Taiwan’s bond holdings.
Moscow has been at risk of defaulting since its invasion of Ukraine, the Western powers have frozen hundreds of billions of dollars in foreign currency reserves held abroad and cut off large parts of their banking system from world markets.
The Kremlin has repeatedly stated that Russia has no reason for default but cannot send money to bondholders due to sanctions, and has accused the West of trying to force it into an artificial default.
While a formal default would be largely symbolic given Russia’s current inability to borrow internationally and its rich oil and gas revenues don’t require it, the stigma is likely to increase its borrowing costs in the future.
The country’s effort to reverse the first major default on international bonds since the Bolshevik Revolution more than a century ago ran down a difficult path when the US Treasury Department’s Office of Foreign Asset Control (OFAC) ordered Moscow to make payments effective discontinued at the end of May. ,
Countries typically stop paying their debts when they have little or no money left in international reserves and no access to markets. But this case is different: a default by Russia with the country’s undervalued investment grade was unthinkable before the recent invasion of Ukraine.
There have been no defaults in Russia since a financial crash in 1998, and no major international or “external” market defaults since the 1917 Bolshevik Revolution.
Russia owes about $40 billion in international debt, about half of it to foreign investors.