Severstal requested data from bondholders for coupon payment

The company failed to pay coupons,because against the backdrop of sanctions, the payment agent of Citibank in New York refused to make a payment to Severstal CHMF₽1 058 +1,24% Buy MMK MAGN$41.88 +0,42% Buy NLMK NLMK$157.24 +1,45% Buy

The Russian steel company Severstal has asked holders of Eurobonds maturing in 2022 and 2024 to provide it (or the issuer   of Steel Capital) with information about the securities they hold. Severstal needs data on the number and type of securities owned by the holders, as well as the jurisdiction of the owner and the account in which the bonds are held   . This is stated in a press release from the company.

The company said it is approaching lenders directly as it cannot pay coupons "due to a lack of regulatory approvals that are still pending." Severstal remains committed to fulfilling its obligations under the 2024 and 2022 bonds and has sufficient funds to do so, the company stressed in its announcement.

What preceded this step of the company

In March, Severstal failed to make a payment of $12.6 million on Eurobonds issued by Steel Capital in the amount of $800 million maturing in 2024: Citibank's New York division refused to make the payment. Citibank acts as the principal paying agent and transfer agent and account bank in respect of the Notes. Severstal was supposed to redeem this coupon on March 16th.

Metallurg also announced that it is "technically unable" to pay coupons on its $750 million Eurobonds maturing in 2022, which are due April 17, 2022.

Severstal was unable to redeem the coupons on time, as on February 28, the main owner of the company, Alexei Mordashov, along with other Russian businessmen and politicians, was under EU sanctions. The company promised to find alternative ways to avoid default   .

Severstal did not pay off the bonds due to sanctions against Mordashov

“Unfortunately, our Western financial partner froze the payment initiated by the company. We continue consultations with partners and do our best to ensure that bondholders receive funds in accordance with the terms of the bond issue,” Severstal CEO Alexander Shevelev noted earlier.

At the end of March, Severstal requested permission from the Office of Foreign Assets Control of the US Treasury (OFAC) to make payments on debt obligations in foreign currency. In addition, the company has applied for licenses with the UK Financial Sanctions Enforcement Authority (OFSI) and sanctions authorities in Luxembourg and Ireland for Eurobond payments. However, no permits have been granted to date.

Divide bondholders into residents of "friendly" and "unfriendly" countries

“The news is as positive as it can be for Eurobond holders who have not received their accrued coupons on time. From the point of view of relations with investors, this is better than the absence of feedback,” commented Ruslan Mustaev, portfolio manager at Otkritie Management Company, commenting on the news. He believes that this measure can be quite effective, the issuer will receive information about how much Eurobonds are held by residents and how much by foreign holders.

However, the procedure for paying coupons under sanctions is not completely clear. “We can assume that there is an option to pay Russian investors coupon income on Eurobonds in rubles at the Central Bank rate on the date of payment. The issue of payment to foreigners remains open, ”the Otkritie management company said.

“Unfortunately, it is difficult for us to judge how effective and whether any schemes can work in general, but we welcome the company’s decision to at least take care of these issues and clarify the data of its bond holders,” the DIRECTOR of the department for working with shares of Sistema Capital Management Company Konstantin Asaturov.

The expert suggested that the company most likely plans to first clarify the owners of its Eurobonds in order to at least divide them into residents of "friendly" and "unfriendly" countries.

“It is likely that with the former, as well as with residents of RUSSIA, the process of paying coupons or redeeming bonds in general can be much easier if permission is obtained from the relevant regulators. As for the latter, much will depend on the policy in these matters of the respective countries that have imposed sanctions , but even in their case, payment in rubles is theoretically possible,” Asaturov concluded.

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A person who issues securities. The issuer can be both an individual and a legal entity (companies, executive authorities or local governments). Default (from the French de fault - due to fault) - a situation that has arisen when the borrower fails to fulfill obligations to pay or service debt. A default is the failure to pay interest on a loan or a bonded loan, as well as non-repayment of the loan. It is worth highlighting a technical default - a situation where the fulfillment of obligations was only a temporary delay in payments, as a rule, due to circumstances beyond the control of the borrower. A default serves as a basis for a creditor to file a claim for the bankruptcy of the borrower. In addition, the bond implies the right of the owner to receive a percentage of its face value or other property rights. Bonds are the equivalent of a loan and are similar in principle to the lending process. Both governments and private companies can issue bonds.