Russian sanctions-linked firms run into hurdles with debt payments

Debt obligations from Russian companies linked to sanctioned billionaires were keeping investors on tenterhooks on Tuesday, as coupon payments to foreign holders of the securities ran into hurdles due to Western sanctions triggered by Moscow's invasion of Ukraine.

Russian steel producer Severstal, whose main shareholder, Alexey Mordashov, was sanctioned by the European Union on Feb. 28, was having trouble paying the holders of its debt, a source close to the company said.

Evraz, the Russian steelmaker whose biggest shareholder is sanctioned Russian Roman Abramovich, said on Tuesday the coupon payment due March 21 was settled with the paying agent after it was temporarily blocked by a Western correspondent bank.

Fertiliser company EuroChem has also had problems making a coupon payment that was due on March 14 after being blocked by the paying agent, Bloomberg reported last week. The company announced on March 16 that Vladimir Rashevskiy has resigned as chief executive officer and from the board of directors effective March 15 after he had been sanctioned by the EU.

The hurdles faced by these firms show how punishing Western sanctions imposed following Russia's invasion are having broad impact, as banks turn cautious to avoid violating the rules.

Russia, which calls its attack on Ukraine a "special military operation," has also had its sovereign debt payments come under a microscope from international investors.

So far, however, coupons due on dollar-denominated bonds appear to have been processed by intermediary banks under a temporary license issued by the U.S. Office of Foreign Assets Control (OFAC).

Russia's coupon payment on a sovereign bond maturing in 2029 was received on Monday, a bondholder said, the second time in recent days that the country appears to have averted default.

Assets and companies linked to rich Russian businessmen perceived to be close to President Vladimir Putin face particularly heightened scrutiny, as a number of them have been targeted by Western sanctions.

Russian corporates have nearly $100 billion of hard currency bonds outstanding, more than twice the $40 billion the Russian sovereign owes on international bond markets, according to data from JPMorgan.

More than 50% of the outstanding corporate bonds were issued by quasi-sovereigns or state-run firms, with a heavy skew toward oil and gas companies.

TEST PAYMENT

The source close to Severstal said a "test" payment the company sent last week for its coupon for 2024 loan participation notes (LPN) has yet to be processed by Citigroup Inc, with the grace period set to expire on Wednesday.

Severstal said on March 16 that it would pursue alternative options to deliver the $12.6 million coupon payment in case the test - 1% of the coupon - is not processed. But it has not provided any further details so far.

Citi and Severstal declined to comment on the information given to Reuters by the source.

Evraz faced similar hurdles, with the company saying on Monday that a coupon payment of nearly $19 million was "blocked for compliance" by the correspondent bank. The company said it believed the issue was linked to sanctions.

On Tuesday, it said the paying agent had settled the relevant account.

Source: Reuters