JPMorgan Analysts Tout Russian Company Debt ‘Recovery Play’

JPMorgan Touts Distressed Russian Company Debt ‘Recovery Play’

Strategists at JPMorgan Chase & Co are recommending clients boost positions in some Russia-linked corporate debt, even as the U.S. and allies tighten sanctions to restrict investments in some of the country’s assets.

Strategists in the bank’s research team led by Zafar Nazim upgraded debt of Russian companies including oil and gas giant Lukoil PJSC and steel producers Novolipetsk Steel and Magnitogorsk Iron & Steel Works to overweight in a note sent to clients on Friday. 

The recommendations demonstrate how Wall Street continues to capitalize on a buying opportunity arising from Russia’s invasion of Ukraine. Sanctions on Russia haven’t outright banned trading in assets like company debt tied to the country. 

The strategists said in the note that Lukoil is the “best recovery play” on distressed Russian corporate debt because the company has substantial international operations and relatively low international debt. They see the bonds, which were quoted on Friday in a broad range of 20 to 40 cents on the dollar, ultimately paying out at par.

Bonds tied to Novolipetsk may also have room to rally given the company’s international operations, the strategists said. They took a more downbeat view on firms such as Dutch telecommunications company Veon Ltd., which gets most of its revenue from Russia and has bonds trading around 55 cents, a level the strategists think is close to the firm’s recovery potential. 

Sanctions and other restrictions on certain foreign payments are sowing confusion in the debt markets. Foreign holders of Russia’s local-currency government bonds still haven’t received interest payments due earlier this week, financial data provider CBonds and five investors at American and European firms said on Friday. 

For now, Russian companies aren’t restricted by their government from servicing foreign debts, the analysts wrote. Still, risks remain around future state rules, financial performance and the companies’ willingness to pay. 

“Most Russian corporates are likely incentivized to continue servicing debt obligations given material international exposure via foreign operations and exports. However, they may be precluded from doing so, potentially leading to an event of default,” the note said. 

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