Russia’s biggest companies – including unsanctioned ones – are “bypassing Wall Street” for servicing their outstanding debt following Western sanctions that broadly disrupted critical financial operations needed to keep bonds functioning, Bloomberg reported on Monday.
Restrictions have complicated a large number of financial processes for servicing bonds even if a borrower hasn’t been targeted by sanctions, the outlet said. Companies and investors now search for alternatives, including swaps, buybacks and direct payments to bondholders.
Some companies like fertilizer producer Uralkali, miner Norilsk Nikel and metals giant Metalloinvest have opted to change bond documentation and pay the debt directly to investors in rubles, the outlet said. The country’s energy major Gazprom and one of the world’s largest steel producers, Magnitogorsk Iron & Steel Works PJSC, have swapped some of their eurobonds for ruble debt.
Gazprom Deputy Chairman Famil Sadygov told Bloomberg that replacement bonds were “the most reliable way” to service debt given the restrictions on financial infrastructure. He noted that holdings of ten of the bonds have already been substituted and another 12 will be replaced by the end of March, adding that Gazprom pays coupons on both the swapped Russian bonds and the remaining international bonds.
Following EU sanctions, Europe’s two major central depositories – Euroclear and Clearstream – have only been processing transactions verified by paying agents. The clearing houses have been reluctant to process corporate actions, forcing companies to find ways to bypass European depositories.
Companies have realised that sanctions have disrupted so many processes needed to keep bonds that it’s become necessary to take them out of the market.
A portfolio manager at Armbrok investment company, Dmitry Dorofeev, told Bloomberg that “in a couple of months everything is going to be bought out” by local investors, adding that “Russian companies will replace bonds and return to Russia.”
Russia’s international corporate bond market declined by about $12.7 billion from $85.6 billion since the imposition of Ukraine-related sanctions on Moscow, according to the outlet.