Russian-Linked Bank Plots Path Through Bond Chaos With Buyback

Russian-Linked Bank Plots Path Through Bond Chaos With Buyback

Bond-market turmoil that followed the invasion of Ukraine is prompting a lender with Russian exposure to buy back its own battered debt early to save on funding costs. 

Eurasian Development Bank, which is based in Almaty, Kazakhstan, and attributes two-thirds of its capital to Russian sources, is the first company to openly take advantage of the discount on its bonds, which have slumped into distressed territory. 

Issuers are being forced to get inventive servicing their debts as they contend either directly with international sanctions on Russia, or the resulting loss of business. One idea raised would move payment processes onshore, enabling firms to avoid the restrictions that have blocked bond payments.

EDB proposes buying back at least $200 million of the debt at a maximum of 80% face value, according to a filing on Tuesday. That would wind up saving it at least $44 million, including interest accrued until Sept. 20, when the $500 million note matures, Bloomberg calculations show.  

KNG Securities was offering to buy EDB’s 2022 notes at 48 cents on the dollar and selling them at 68 cents on Tuesday, underscoring the price impact of the Kazakh lender’s dependence on Russia. Mizuho was indicating buy-sell offers for 60-90 cents on the dollar, according to data compiled by Bloomberg.

For bondholders, it gives a route to cashing out early, albeit at a potential loss. But it has the advantage of avoiding potential complications that could scupper payment on the maturity date altogether.  

Sanctions imposed on Russia as punishment for the invasion have made for a rocky path to payment.

Foreign bondholders of companies including Severstal PJSC and Russian Railways are still waiting to receive money that was held up by international lenders wary of violating sanctions.   

Read More: Citi’s Caution Threatens to Send More Russian Debt Into Default 

Russian investors have fared little better. The world’s biggest settlement systems -- Euroclear and Clearstream -- have blocked accounts with the local Russian depository, leaving payments in limbo. 

Now the regulators are stepping in.

A Russian government subcommittee for foreign investment control recommended issuers make payments separately to foreign and Russian holders. The Union of Industrialists and Entrepreneurs -- Russia’s big-business lobby-- proposed bringing the role of paying agent and register for the bonds onshore, warning of a potential wave of cross-defaults and foreign asset freezes. 

It’s far from clear if the proposals will be adopted, and companies are looking for alternatives in the meantime. 

Russian oil services company Borets is trying to win investor approval to delay the maturity of its notes by a year. With an April 22 deadline approaching, bondholders with over 80% of the debt have backed the proposal, according to an email seen by Bloomberg. The company is offering investors a 0.35% premium to get over the 90% threshold required.

©2022 Bloomberg L.P.

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