(Bloomberg) — Investors in the debt of Russian companies registered abroad are poring over the details of bond contracts to figure out if the suspension of the firms’ shares means they can demand early repayment in full.
Search engine Yandex NV, social network operator VK Co Ltd, and online marketplace Ozon Holdings are three Russian companies with a combined $2.4 billion in convertible dollar bonds — notes that can be exchanged for common stock in the issuing company. Their bonds include clauses that allow noteholders to ask for early repayment if the shares of the company are delisted or if their trading is suspended for a number of days.
The key question is whether the decision to halt Russian companies trading on the Nasdaq counts as a “delisting event” for bonds convertible into equity. Such an event is unprecedented, according to two convertible bond bankers, who spoke to Bloomberg on condition of anonymity.
“If it were to be delisted that would surely create a default,” said Antoine Lesne, head of ETF strategy and research for SPDR, State Street’s ETF offering, a bondholder of Yandex. The complexity of the language suggests the delisting event could “be a good exam question for lawyers and investors.”
Yandex, a Russian company registered in The Netherlands, has $1.25 billion outstanding, while VK Co has a $400 million bond due 2025, and online marketplace Ozon Holdings has a $750 million convertible note that matures in 2026.
Yandex said in an emailed statement that if its share trading doesn’t resume by the end of March 4, a delisting event will be triggered, initiating a process whereby bondholders could seek a redemption of the bonds at par. Ozon confirmed in a filing to the SEC that a delisting event could take place if trading of its shares don’t resume by the end of March 8, and would lead to investors being able to request a redemption of the bonds.
A spokeswoman for VK Co said they are working with the London Stock Exchange to resume trading “as soon as possible.”
Default Risk
Both Yandex and Ozon have said they’ll struggle to pay bondholders if they demand an early repayment.
Ozon warned that its Russian subsidiaries may not be able to send the cash to its Cypriot holding company, which issued the bonds.
The Yandex group as a whole “does not currently have sufficient resources to redeem the notes in full,” the company said. The firm had about a $615 million-equivalent of euro and U.S. dollar-denominated cash balance at the end of February, it said, adding that only around 60% of that amount is located outside of Russia.
Fitch Ratings downgraded Yandex by two steps to junk on Friday afternoon and placed its ratings on credit watch negative, adding that international sanctions represent a “huge shock” for Russia’s credit fundamentals.
For the time-being, uncertainty reigns among bondholders. Investors are seeking clarity ahead of anything else, according to one of the bankers.
(Adds Fitch Ratings downgrade in penultimate paragraph)
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