‘Just Sell’: Russia Bondholders Jump Right Before Repayment

(Bloomberg) -- Next week, Russia's Gazprom PJSC is supposed to be paying off $1.3 billion of investment-grade bonds at full face value when the debt matures. Investors are so keen to not wait until then that a trade was recorded on Monday at just 60 cents on the dollar.

The market for Russian corporate debt denominated in foreign currencies is now littered with notes trading at a fraction of their face value with little time left until they mature, despite being seen as safe from a credit rating standpoint. Some are 80% below maturity value.

Such deep discounts, seen typically in bonds that have already defaulted, are an indication of how a barrage of sanctions against Russia are upending normal market dynamics. Bondholders normally wait out the last few months to maturity as prices converge to face value. Yet for Russian foreign-currency bonds, it's a full-on dash to the exit no matter the losses.

“If you are forced to sell them because of sanctions then you don't have an option but to just sell,” said Kshitij Sinha, a portfolio manager at Canada Life Asset Management, which oversees 40.7 billion pounds ($54.6 billion). “I can also see a case for taking the loss now and selling because now Russia has become un-investable,” Sinha said, pointing out that it's “morally and logically” hard to invest now.

It is becoming almost impossible for investors to know whether and when they will get back their money amid sweeping sanctions against Russia. The exclusion of some Russian lenders from the global payments system known as SWIFT raises questions about the flow of interest and principal payments.

President Vladimir Putin has also banned all Russian residents from transferring foreign currency abroad from Tuesday, including “in connection with loan agreements.” The central bank later clarified the ban “only covers new loans and not servicing of existing debt.”

Bank of Russia Reassures on Debt After Putin's Sanctions Gambit

For energy giant Gazprom, beyond next week's maturing debt it's also facing another foreign-currency redemption this summer, as a 500 million Swiss franc ($545 million) note is coming due. A trade on this note was recorded at 50% of face value on Monday, with a broker offering to buy at just 35%.

Russian Railways' 450 million Swiss franc notes due next year are indicated at bids of as low as 22% of face value -- that's around the level at which Wirecard AG's bonds were trading after the firm imploded in 2020.

Almost $34 billion of Russian foreign-currency corporate bonds are coming due this year and next, 85% of which is in U.S. dollars, based on data compiled by Bloomberg. The average bid price on them is almost 10 cents below face value.