Bondholders Say Russia’s Yandex Has Paid Coupon on Dollar Debt

(Bloomberg) -- A Russian telecommunications company has paid a coupon due Thursday on dollar bonds, in a relief to investors who fretted over whether Russian companies will continue servicing their foreign-currency bonds.

Search engine Yandex NV, the group's entity based in The Netherlands, transferred $4.7 million to holders of its $1.25 billion bond due 2025, according to bondholders. It's the first foreign-currency coupon payment by a company headquartered in Russia since sweeping sanctions and capital controls raised fears among bondholders that corporates won't be able to service their debts. Yandex's debt has lost more than half its value in the past week, according to TRACE pricing.

While it's just one payment, it may set a precedent for Russian corporates that have issued debt in foreign currency, especially given the uncertainty over whether borrowers can meet their debt obligations as they navigate a series of sanctions and capital controls. A spokesperson for the company said on Monday that it has enough liquidity outside of Russia to settle its coupon payments, but declined to comment further when contacted on Thursday.

“The Yandex payment is crucial - every single coupon paid shows us the willingness of Russian corporates to remain current on their payments” said Jean Dominique Butikofer, head of emerging markets fixed income at Voya Investment Management. “We navigate on a day-by-day basis as sanctions, amendments and implementations change so fast.”

Damien Regnier, a partner at Tyrus Capital Alternatives LLP, received the coupon funds on Thursday, but cautioned against drawing any wider significance from the payment.

“It is hard to generalise the specific situation of Yandex, an investment grade, cash-rich tech firm listed for years in the U.S.,” he said. “Due to its global footprint and operations across countries, it's international credibility is even more important.”

More than 90% of the $18 billion corporate Eurobonds due this year were issued by units or SPVs outside of Russia, according to data compiled by Bloomberg. So are three quarters of the issuers that have coupon payments due.

Breaking Down the Data
By using the SRCH function, we filtered the data to pinpoint all foreign-currency bonds issued by corporates and that fall under Regulation S rules -- for securities sold outside of the U.S., with Russia as their country of risk.

State-controlled energy giant Gazprom PJSC is already in the process of settling a $1.3 billion debt due on March 7, issued by Gaz Capital SA, a SPV incorporated in Luxembourg. State oil producer Rosneft PJSC's $2 billion bond, issued from an Ireland-based entity, matures on March 6.

“A lot of these Russian corporates may have U.S. dollars deposited in banks outside Russia and the latest news flow indicates willingness from Russian corporates to serve their debt for now,” said Voya's Butikofer.

A $9 Billion Bond Problem Is Coming for Russian Issuers (1)

Cash piles

That most of the issuing bodies are based outside of Russia may ease some of the concern international investors had that a wave of defaults is imminent after Russia's major banks were cut out of the SWIFT international messaging system. Fitch Ratings estimates that most companies with foreign-currency notes due over the next year can repay with available cash on their balance sheets, according to a report dated Feb. 23 but emailed to Bloomberg on Monday.

That's because their lesson from sanctions imposed on Russia since 2014 involved building huge cash piles in case they're locked out of financial markets at short notice, according to Fitch.

That said, if the current restrictions on money transfers drag on, and Russian companies are shut out of the financial system for long, then new issues may emerge. Raising debt in rubles to refinance foreign currency notes is a costly and impractical option, given the depreciation of the currency and the difficulty of finding a clearing house or a bank that can transfer the funds.

But also, as Marc Ostwald, chief economist for ADM ISI said on Wednesday, corporates will do what Russian President Vladimir Putin will tell them to do. And given the pace at which relations between Russia and U.S. and its allies have deteriorated, it's anyone's guess what Putin's next move will be.

“We are in gray territory, surrounded by restrictions of all sorts,” said Cristian Maggio, head of portfolio strategy at TD Securities. “Investors will likely not move a finger until all this is clear to avoid being prosecuted later for violation of international bans and sanctions on Russia.”