Russian internet companies Yandex and Ozon may soon have to drain their cash resources to redeem a combined US$2bn of outstanding CBs, a disastrous prospect triggered by indefinite trading halts placed on their Nasdaq-listed shares in the wake of Russia’s invasion of Ukraine.
The two companies separately revealed late last week that suspensions in trading of their shares since February 28 could trigger redemption rights under the terms of CBs they issued in recent years.
Having to redeem these securities would deliver a major blow to their liquidity at a time when Russian companies are facing upheaval due to the West’s wide-ranging sanctions, other economic measures that threaten to disrupt Russian capital markets, and the sinking ruble.
Yandex, the Russian search engine, warned late on Thursday that holders of its US$1.25bn 0.75% CB (issued in early 2020) would have the right to put these notes to the company at par plus accrued interest if the Nasdaq-listed shares were suspended for more than five days. Friday marked the fifth day in a row the shares were halted.
With just US$615m of cash and equivalents plus Rbs47bn (US$380m) on hand, Yandex conceded it would not have enough money to redeem the CB in full. In a further complication, Russian capital controls may make it impossible for Yandex to shift funds to its Dutch holding company to redeem the bonds.
Even if it can redeem the bonds, Yandex faces a liquidity crunch.
“Even if we are able to satisfy our redemption obligations under the notes in full, if we are not able to secure additional financing, a requirement to redeem a material portion of the notes would have a material adverse effect on our short-term financial position and liquidity and may affect our ability to meet our other obligations,” Yandex said in a statement.
Yandex shares last changed hands at US$18.94, down nearly 70% this year. Still, the current share price is yet to reflect the full damage to Yandex's equity value since the trading halt was put in place.
Meanwhile, Ozon, a fast-growing Amazon-like e-commerce company that went public in the US in late 2020, is in a similar predicament.
Under the terms of Ozon’s US$750m 1.875% CB due 2026 bondholders can demand the company redeem their bonds at par if its Nasdaq-listed ADSs are in a trading halt for seven or more days (or through this Tuesday's session in its case).
Alternatively, they can convert the bonds, but that is an unattractive prospect given the conversion price of US$86.64 is way above the stock’s last close of US$11.60 before the halt.
Ozon has Rbs113bn of cash or enough to redeem the CB, but most of this money is held in Russia. As with Yandex, capital controls in Russian threaten to make it hard to transfer the money to the holding company – in Ozon's case in Cyprus – that issued the CB.
Ozon is in a difficult place because a failure to pay would constitute a default, but redeeming the bonds would leave the company with significantly less cash to fund its growth.
Still, the company reported last month it was free cashflow positive in the fourth quarter as its gross merchandise value soared by more than 130% year on year to Rbs76bn.
Also on Friday, Russian payments firm Qiwi (whose stock is listed on both Nasdaq and the Moscow Stock Exchange) said its services were available in full and US and EU sanctions had no immediate impact on its operations.
But it warned the “magnitude” of the sanctions was “unprecedented in modern Russian history” and would have a significant impact on the country’s financial sector.