A $9 Billion Bond Problem Is Coming for Russian Debtors

Russian borrowers will need to figure out how they’re going to pay about US$9 billion over the next three months.

That’s the approximate amount of cash that Russia’s companies and government are due to pay holders of foreign-currency bonds before the end of May, according to data compiled by Bloomberg. That task has been complicated by the swath of international sanctions that have been imposed on Russia following its invasion of Ukraine, as well as President Vladimir Putin’s response: capital controls, albeit ones that are set to exclude the need to service existing debt.

“Accessing dollar liquidity could be difficult,” said Timothy Ash, senior emerging-market sovereign strategist at BlueBay Asset Management in London. “Technically it might be difficult to pay” due to platforms that typically facilitate transactions closing access to Russia, he said.

Among the first out of the blocks will be Internet company Yandex NV and Russian Railways, which both have coupon payments due in coming days, the data show. Energy giants Rosneft Oil Co. and Gazprom are meanwhile scheduled to pay off maturing bonds with values of $2 billion and $1.3 billion respectively in the next week or so. Netherlands-based Veon Holdings—a telecommunications company that gets much of its revenue from Russia and Ukraine—is also due to repay a bond, with a maturity on March 1.

There is so far no indication from borrowers that they won’t pay their obligations, but the current landscape has dragged down bond prices, put a premium on access to U.S. dollars, and made it harder for Russian companies to interact with international financial markets.

The next payments due from the Russian government are set to take place on March 16, with around $117 million of interest due, based on Bloomberg calculations. Its next maturing bond, a $2 billion security, should be repaid on April 4.

Overall, investors hold about $250 billion of bonds issued by Russian companies. While about half of the notes are denominated in the ruble, there are 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.

Default Odds

All in, Russian corporate and government borrowers in international bond markets are on the hook for around $2 billion in coupon payments and $7 billion in principal in the next three months, according to Bloomberg-compiled bond data on non-ruble bonds where Russia is noted as the country of risk. And over the next six months, the government alone is scheduled to pay out around $1 billion in coupons and $2 billion in principal, based on the data.

Among the potential hurdles they face are the decision by the United States and its allies to cut off some Russian banks from the SWIFT messaging system, which facilitates international transfers, and a ban on trading in newly-issued debt from the Russian sovereign. Moves by Putin to ban certain foreign-exchange transactions and payments to non-residents could also throw a wrench into the payments system, although the Bank of Russia has clarified that some of its measures only apply to new debt.

See also:

• A Treasurer’s Checklist for Navigating the Russia-Ukraine Conflict
• Will Russian Entities Service Foreign Debt?
• Russia Erects Financial Defenses as Sanctions Hit Banks and Markets
• U.S. Pensions Face Demands to Exit Russian Assets

Russian assets have been hammered over recent days, following the invasion and the amping up of sanctions, and investor concerns about the prospects for non-payment of various debts have been growing. The turmoil has hampered accurate pricing of many securities, with wide gaps between the prices investors are prepared to buy or sell at, making it difficult to judge whether market participants’ chief concern is illiquidity or solvency.

The cost of protecting Russian sovereign debt skyrocketed, with the probability of non-payment implied by credit-default swaps climbing to more than one in two. Credit rating firms have, meanwhile, slashed their assessments of the country, which last went into default back in 1998.

Here’s a selection of what issuers are scheduled to pay in the coming months:

Upcoming Maturities

Upcoming Corporate Coupon Payments

Upcoming Sovereign Coupon Payments

(issuer is the Russian government)

—With assistance from Maria Elena Vizcaino & Finbarr Flynn.

Copyright 2022 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.