Holders of Russian Taiwan bonds say they received no payments: sources

The headquarters of the Central Bank of Russia in Moscow February 28, 2022. Sweeping sanctions imposed by western capitals on Russia in the wake of its February 24 invasion of Ukraine and countermeasures by Moscow have all but cut the country off from the world financial ecosystem.

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Some Taiwanese holders of Russian eurobonds failed to receive interest due on May 27 after a grace period expired on Sunday night, two sources said, potentially setting Moscow on the path to its first major default in over a century.

Russia was due to make coupon payments of $100 million for two Eurobonds on May 27 – $29 million for a euro-denominated 2036 bond and $71 million for a dollar-denominated 2026 bond.

Sweeping sanctions imposed by Western capitals on Russia in the wake of its Feb. 24 invasion of Ukraine and countermeasures by Moscow have all but isolated the country from the global financial ecosystem. Russia calls its actions in Ukraine a “special operation”.

Despite the plethora of restrictions, Russia had managed to make payments on seven bonds since its invasion of Ukraine before the latest interest payments.

Moscow has been scrambling to find ways to deal with pending payments and avoid a default in recent days.

President Vladimir Putin signed a decree last Wednesday to initiate interim procedures and give the government 10 days to select banks to process payments under a new system, hinting that Russia will consider its debt obligations met when it paid bondholders in rubles.

One of the Taiwanese sources told Reuters that the two eurobonds in question “do not have a ruble clause attached”.

“The coupon cannot be paid in rubles instead,” added the source.

Russian debt accounts for less than half a percent of Taiwan’s bond holdings.

Moscow has been at risk of default since Western powers froze hundreds of billions of dollars in its foreign currency reserves held abroad and cut off much of its banking system from world markets during its invasion of Ukraine.

The Kremlin has repeatedly said there is no reason for Russia to default but is unable to send money to bondholders due to sanctions and accused the West of trying to force Russia into an artificial default.

While a formal default would be largely symbolic given Russia’s current inability to borrow internationally and, thanks to rich oil and gas revenues, it doesn’t have to, the stigma would likely increase its borrowing costs in the future.

The country’s efforts to avoid its first major default on international bonds since the Bolshevik Revolution more than a century ago hit an insurmountable hurdle when the US Treasury Department’s Office of Foreign Assets Control effectively blocked Moscow from making payments in late May Afford.

Countries typically stop servicing their debt when they have little or no money left in international reserves and no market access. But this case is different: a default by Russia was unthinkable until recently given the country’s investment grade rating prior to the invasion of Ukraine.

Russia has not defaulted since a financial crash in 1998, and has not experienced a major international or “external” market default since the aftermath of the 1917 Bolshevik Revolution.

Russia has around $40 billion worth of international bonds outstanding, about half of which is held by foreign investors.

https://www.cnbc.com/2022/06/27/taiwan-holders-of-russian-bonds-say-havent-received-payments-sources.html Holders of Russian Taiwan bonds say they received no payments: sources

Joshua Buckhalter

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