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Owners of Russia's Promsvyazbank subordinated debt face write-off risks
December 15, 2017 / 2:55 PM / a month ago

Owners of Russia's Promsvyazbank subordinated debt face write-off risks

MOSCOW, Dec 15 (Reuters) - Up to $1.13 billion worth of subordinated bonds held by investors in Russia’s Promsyvazbank are at risk of being written off if the central bank follows the precedent set by previous bailouts this year.

Russia’s central bank said on Friday it was placing Promsvyazbank (PSB), the country’s 10th largest private lender, under temporary administration - the third in a series of costly financial bailouts this year.

The bailouts for Otkritie and B&N Bank earlier this year involved some subordinated debt issued by the lenders being written off. Four analysts said they now expected the same for PSB.

“If you look at previous similar cases in Russia, all subordinated debt holders have been completely wiped out,” said Ekaterina Sidorova, a corporate debt analyst at state lender Sberbank. “In Russia, this has been a very binary situation.”

Subordinated debt is unsecured and stands last in the queue to be repaid in the event of a liquidation. On its website, PSB says investors currently hold $1.13 billion of subordinated debt in four bond issues sold between 2012 and 2014.

PSB bought back some of its subordinated Eurobond issue maturing in 2019 in late September after the price of subordinated bonds issued by Otkritie hit all-time lows following the lender’s bailout.

Uralsib analysts said PSB subordinated bond issues maturing in 2019 and 2021 were at risk.

“Subordinated Eurobonds could be written off. The fate of the bank’s subordinated bonds, most likely, will be the same as the subordinated bonds of Otkritie,” they said in a note.

Alexander Danilov, a senior director at Fitch ratings agency, said holders of PSB’s Tier 1 subordinated debt would incur losses if the hole in the bank’s balance sheet was more than 25 billion roubles. Tier 2 holders will take losses if the shortfall is more than 95 billion roubles, he said.

“The exact write-off amount will depend on the hole size,” Danilov told Reuters.

“If we are to believe the 130 billion roubles additional reserve requirement that was leaked yesterday is correct, subdebt will be almost, if not fully, wiped out.” (Reporting by Jack Stubbs and Yelena Orekhova in Moscow; Additional reporting by Sujata Rao and Karin Strohecker in London; Editing by Katya Golubkova/Keith Weir)

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