Russian lender Sovcombank has canceled the interest accrued under two of its perpetual bonds, becoming the first Russian borrower to opt for this route as companies struggle to complete payments to creditors amid international sanctions.
The notice affects a combined $11.5 million (€10.5 million) of interest accumulated since February, according to two regulatory filings on Monday. All rights and claims of bondholders over the canceled interest “shall become null and void”, they said.
Russian companies are struggling to keep up with debt obligations as international sanctions make it difficult for payments to reach investors. Some have payments pending the receipt of a special license in the UK or US, while others have paid in rubles. None had previously canceled payments.
Sovcombank itself had taken different approaches as recently as this month. It paid an international coupon due April 7th in local currency, and offered creditors the chance to swap eurobonds into Russian ones last week, “bypassing the international payment infrastructure”. The lender has been targeted by sanctions since the beginning of Russia’s war in Ukraine.
The perpetual notes issued by Sovcombank contain a feature in Additional Tier 1 debt, allowing the cancellation of some or all interest accrued ahead of a coupon date, at the borrower’s discretion. The notice of cancellation of interest should be sent no later than 10 days and no earlier than 30 days before the interest payment date, according to the bond documents.
Although often allowed, the move is uncommon in the European bank bond space.
Also on Monday, Sovcombank announced in a statement it would suspend interest payments on two foreign-denominated bonds - a tranche maturing in 2030 and one in 2025 - issued via its Irish entity SovCom Capital DAC.
The company would continue to accrue interest under these two bonds and is working out mechanisms to enable payments to holders registered with both Russian and international depositories, it said. While a solution for the Russian-based creditors is expected to appear within a few weeks, timing is unclear for the holders abroad. - Bloomberg
