On May 27th, Taiwanese shareholders remain frantic over unpaid interest dues of the Russian Eurobonds under their jurisdiction. Russia is yet again placing itself in risky situations against other diplomatic trades between long-term investors. If the Eurobonds fail to receive their set interest dues, it might lead to Moscow’s highest and first paramount external sovereign failure in over a hundred years of promising deals with overseas investors within the premise of international bonds.
Two Eurobonds were set to be filled by Russian capital, namely, the year 2036’s euro-denominated bond for a hefty $29 million and the dollar-denominated bond for a much larger amount of $71 million, set for 2026. The country had to fulfill these slots of dues with $100 million in the form of coupons.
The Russian prompt of war against Ukraine in the latter days of February had been one of the biggest reasons for its economic decline.
Russian forces called the entire ordeal a special operation meant to be befitting of their goal. Following that were arduous sanctions forcefully placed by Western nations on the war-raging country, compiled with disciplinary action against Moscow where the country was shunned by the world-class financial industry of commencing and trades.
Even with the newfound title as an outlier, Russia wasn’t tardy with the previous seven bonds it was in debt for but seemed to be struggling in light of recent events.
Moscow has been trying to seek financial relief in the past couple of weeks but to no avail, it may end up getting a default if the payment situation is not coddled soon.
The country is said to accept its debt commitments as completely valid when it is done paying the owners of the bond in the domestic currency. Last Wednesday, President Vladimir Putin had signed a decree that would allow the temporary damage control procedures to be set in motion, where the Government will be given a little over a week to pick banks to operate monetary transactions under a brand new scheme.
However, Taiwanese insiders stated that coupons cannot be fulfilled with roubles and that Eurobonds had a clause attached that dispelled the usage of roubles.
Major Western nations had drawn a line on Russia’s share of hundreds of billions of dollars that were held in foreign reserves after the news of the invasion of Ukraine had spread overnight. Consequently, the Russian banking system which was an ironclad resource back a couple of years ago is now put on probation in the global markets.
A formal default would be dragging Moscow’s markets under the muddy brough, as its place in the financial ecosystem will be further sullied since the country can’t borrow from overseas lenders.
Nonetheless, it is noted that they don’t need to, courtesy of the extravagant and surplus crude revenue they have to last them through volatile circumstances.
The country hadn’t seen a major default since the 1917 Bolshevik revolution over a hundred years ago, where its deal in international bonds faced a dead end. Typically, countries halt servicing what they own when they face scarcity in their international reserves or have their market access taken away.
In this case, though, it is observed that before the bad choice of invasion against Ukraine, Russia being handed a default was impossible to happen with the nation’s well-sought investment grade and partnership reputation.
Now, seeing how the OFAC—the U.S. Treasury Department’s renowned Office of Foreign Assets Control had banned the country from any potential transactions since May. Therefore, they are at a larger risk of default.
According to current statistics Russia’s international bonds, as a whole, may surpass the $40 billion mark, around 50% are owned by overseas bondholders.
