Russia's default on Taiwanese-owned Eurobonds, 27 June 2022

What did it mean when Russia defaulted on two Taiwanese-owned Eurobonds worth US$100 million? On 27 June 2022, the default took effect after a deadline passed the previous day, with Western sanctions having led Euroclear to block Russian attempts to service the debt.

Russia described the default as artificially manufactured and called it "a farce". The immediate consequences for Russia were expected to be few, because the country was already unable to borrow internationally owing to the SWIFT ban on Russian banks.

A default shaped by payment channels

The event was later widely described as Russia's first foreign sovereign debt default since 1918, though the country had defaulted on domestic ruble-denominated government debt in 1998. The default stemmed from technicalities: sanctions imposed by US and EU authorities made payment in dollars impossible and disrupted payment and clearing channels, so bondholders could not receive funds. It did not mark an actual lack of capability to pay its debts.

An earlier lapse had come on 2 June, when Russia failed to pay interest due in the 30-day grace period, wrongly not counting that interest. The failure to pay $1.9 million was not enough to trigger a cross-default across other instruments, since the minimum threshold in documents for other Russian eurobonds is at least $75 million.