London - Russia is poised to default on its sovereign debt, the first time since the 1917 Bolshevik Revolution as some Taiwanese holders of Russian Eurobonds said they have not received interest due on May 27 after a grace period expired on Sunday evening.
Russia has struggled to keep up payments on $40 billion of outstanding bonds since its invasion of Ukraine on Feb. 24, as sweeping sanctions have effectively cut the country off from the global financial system and rendered its assets untouchable to many investors.
Russia's efforts to avoid what would be its first major default on international bonds hit an insurmountable roadblock in late May when the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) effectively blocked Moscow from making payments.
Russia says any default artificial because it has the money to pay its debts but says sanctions have frozen its foreign currency reserves held abroad.
Russia was due to make $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 .
The payments in question are $100 million in interest on two bonds, one denominated in U.S. dollars and another in euros , Russia was due to pay on May 27. The payments had a grace period of 30 days, which expired on Sunday.
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 scheme, suggesting Russia will consider its debt obligations fulfilled when it pays bondholders in roubles.
However as per a source’s report to Reuters, there was "no rouble clause attached. The coupon cannot be paid in roubles instead".
Russian debt makes up less than half a percent of Taiwanese bond holdings.
“There is money and there is also the readiness to pay,” Russian Finance Minister Anton Siluanov said last month. “This situation, artificially created by an unfriendly country, will not have any effect on Russians’ quality of life.”
While a formal default would be largely symbolic given Russia cannot borrow internationally at the moment and doesn't need to thanks to plentiful oil and gas export revenues, the stigma would probably raise its borrowing costs in future.
Russia's finance ministry said it made the payments to its onshore National Settlement Depository (NSD) in euros and dollars, adding it has fulfilled obligations.
For many bondholders, not receiving the money owed in time into their accounts constitutes a default.
With no exact deadline specified in the prospectus, lawyers say Russia might have until the end of the following business day to pay the bondholders.
-AP/Reuters