Russian Business Lobby Pitches Plan to Avoid Corporate Defaults
- Suggestions include bringing role of paying agent to Russia
- Russian companies are missing bond payments due to sanctions
Source: Bloomberg
Russia’s big-business lobby pitched a plan for default-proofing bond payments as some of the nation’s largest corporations struggle to get funds to investors.
Companies including steelmaker Severstal PJSC and Russian Railways have missed coupons on their foreign debt after international banks delayed processing the cash for fear of violating international sanctions over Russia’s invasion of Ukraine.
To avoid a wave of cross-defaults and foreign asset freezes, the Union of Industrialists and Entrepreneurs proposed bringing the role of paying agent and register for the bonds onshore. The job would be assigned to the Moscow-based National Settlement Depository via a bondholder vote, the union said in letters sent to Bank of Russia Governor Elvira Nabiullina and Prime Minister Mikhail Mishustin.
The goal would be to avoid a situation where foreign creditors can call default if their payments are delayed and win an overseas asset freeze against a company. There’s a risk that would “far exceed the size of the debt obligation, let alone the coupon and interest payments due on it,” the union said.
Non-residents could also receive payments for the bonds on special foreign-currency accounts with Russian banks along with the right to sell the notes to the Finance Ministry or its agent, the Union proposed in its letter, which was seen by Bloomberg, having first been reported by the Kommersant newspaper.
Read More: Citi’s Caution Threatens to Send More Russian Debt Into Default
It’s not clear if the government or central bank will adopt the proposals. The government’s press-service said the letter had been received and would be reviewed. The central bank press service didn’t immediately respond to a request for comment.
“All companies want to pay local investors, the question is what to do with foreigners,” Dmitry Dorofeev, portfolio manager at Alfa-Capital Management Company in Moscow, with about $4 billion in assets under management, said by phone. “Many exporters face the risk of cross defaults and asset freezes.”
In terms of changing the terms of the debt by means of a bondholder vote, “each case will be unique,” as every bond has a different threshold, he said.
“For many loans the proportion of Russian holders is above 50%,” Dorofeev said. “There are plenty of companies that will be able to make the changes and make everything legal.”
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— With assistance by Stuart Wallace
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