A Russian state flag flies over the headquarters of the Central Bank in Moscow, Russia, March 29, 2021. A sign reads: ‘Bank of Russia’. REUTERS/Maxim Shemetov/File Photo

TAIPEI, June 27 (Reuters) – Some Taiwanese holders of Russian Eurobonds did not receive interest due on May 27 after a grace period expired on Sunday evening, two sources said, which could put Moscow on track for its first major external sovereign default in over a year. century.

Russia was due to pay $100 million in coupon payments on two Eurobonds on May 27 — $29 million on a euro-denominated 2036 bond and $71 million on a dollar-denominated 2026 bond. Read more

The sweeping sanctions imposed by Western capitals on Russia following its February 24 invasion of Ukraine along with Moscow’s countermeasures have virtually cut the country off from the global financial ecosystem. Russia calls its actions in Ukraine a “special operation”.

Despite the plethora of brakes, Russia had managed to make payments on seven bonds since its invasion of Ukraine before the last interest payments. Read more

Moscow has been scrambling in recent days to find ways to manage upcoming payments and avoid a default.

President Vladimir Putin signed a decree last Wednesday to launch temporary procedures and give the government 10 days to choose banks to handle payments under a new regime, suggesting that Russia will consider its obligations fulfilled when it will pay bondholders in rubles.

One of the Taiwanese sources told Reuters that with the two Eurobonds in question, there was “no ruble clause attached”.

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

Russian debt represents less than half a percent of Taiwanese bond holdings.

Moscow is at risk of default since its invasion of Ukraine saw Western powers freeze hundreds of billions of dollars of its foreign exchange reserves held abroad and cut off much of its banking system from global markets. .

The Kremlin has repeatedly said there is no reason for Russia to default, but it is unable to send money to bondholders due to sanctions, accusing the West of trying to drive it to an artificial default.

While a formal default would be largely symbolic given that Russia cannot borrow internationally at the moment and does not need to thanks to its rich oil and gas revenues, the stigma would likely increase its borrowing costs. in the future.

The country’s efforts to avoid what would be its first major default on international bonds since the Bolshevik Revolution more than a century ago hit an insurmountable obstacle when the US Treasury Department’s Office of Foreign Assets Control (OFAC) effectively prevented Moscow from making payments at the end of May. .

Countries usually stop servicing their debt when they have little or no money in international reserves and no market access. But this case is different: a Russian default was unthinkable until recently, as the country was rated investment grade before the invasion of Ukraine.

Russia has not experienced any failure of any kind since the financial crash of 1998 and has not experienced any major international or “external” market failure since the aftermath of the Bolshevik Revolution of 1917.

Russia has some $40 billion in international bonds outstanding, about half of which are held by foreign investors.

Reporting by Emily Chan; Written by Ben Blanchard; Editing by Christopher Cushing

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