Trouble looms for Russian issuers over $9bn payout

Russian borrowers will have to figure out how they are going to pay back some $9 billion over the next three months.

That’s the approximate amount of cash that Russian companies and the government must pay to holders of foreign-currency bonds before the end of May, according to data compiled by Bloomberg.

That task has been complicated by the series of international sanctions imposed on Russia after its invasion of Ukraine, as well as President Vladimir Putin’s response: capital controls, although they exclude the need to service existing debt.

“Accessing liquidity in dollars could be difficult”said Timothy Ash, senior emerging market sovereign debt strategist at BlueBay Asset Management in London. “Technically it could be difficult to pay” due to the closure for Russia of the platforms that normally facilitate transactions, he said.

Among the first payments are from internet company Yandex NV and Russian Railways, which have coupons due to expire in the next few days, the data shows. Meanwhile, energy giants Rosneft Oil Co. and Gazprom are due to pay off $2 billion and $1.3 billion, respectively, of maturing bonds around next week.

Veon Holdings, a Netherlands-based telecommunications company that derives much of its revenue from Russia and Ukraine, is also due to pay a bond due March 1.

So far, there are no signs that borrowers will default on their obligations, but the current environment has pushed down bond prices, imposed a premium on access to US dollars and has made it difficult for Russian companies to interact with financial markets. international.

The next payments due from the Russian government are scheduled for March 16, for about $117 million in interest due, according to calculations by Bloomberg. The bond due next, in the amount of $2 billion, is due on April 4.

Investors generally hold about $250 billion in bonds issued by Russian companies. While about half of the notes are ruble-denominated, there is also $92 billion of U.S.-currency bonds and 14.1 billion euros ($15.8 billion) of such debt securities outstanding, according to data compiled by Bloomberg.

chances of default

In all, Russian corporate and government borrowers in international bond markets are being squeezed for about $2 billion in coupon payments and $7 billion in principal over the next three months, according to bond data compiled by Bloomberg on non-ruble bonds, where Russia is considered a risky country. And over the next six months, the government alone is scheduled to pay about $1 billion in coupons and $2 billion in principal, according to the data.

Among the possible obstacles they face is the decision by the United States and its allies to isolate some Russian banks from the SWIFT messaging system that facilitates international transfers, and a ban on trading new issues of Russian sovereign debt. Putin’s measures to ban certain foreign exchange transactions and payments to non-residents could also affect the payments system, although the Bank of Russia has clarified that some of his measures only apply to new debt.

Russian assets have taken a hit in recent days following the invasion and tightening of sanctions, and investor concern over the prospects of default on various debts has been growing. The turmoil has hampered accurate pricing of many securities, with wide gaps between the prices investors are willing to buy or sell at, making it difficult to judge whether market participants’ main concern is illiquidity or solvency.

The cost of protecting Russian sovereign debt has soared as the odds of default implied by credit default swaps rise to more than one in two. Meanwhile, credit ratings firms cut their ratings on the country, which last defaulted in 1998.