April 9, 2018 / 5:12 PM / 10 days ago

CORRECTED-UPDATE 1-Russian firms' bonds in a bind as sanctions raise clearing doubts

(Corrects APRIL 9 story to read NLMK (not Norilsk Nickel), paragraph 17)

By Sujata Rao and Abhinav Ramnarayan

LONDON, April 9 (Reuters) - Dollar bonds from Rusal slumped to record lows on Monday, leading a rout of Russian corporate debt as clearing service providers, trading platforms and banks reassessed the securities after further U.S. sanctions.

Seven Russian business tycoons and 21 large companies were included in a list of Treasury Department sanctions on Friday in one of Washington’s most aggressive responses yet to alleged Russian meddling in the 2016 U.S. presidential election .

The list included Rusal boss and metals magnate Oleg Deripaska, energy giant Gazprom’s CEO Alexei Miller, and Suleiman Kerimov, whose family controls Russia’s largest gold producer Polyus.

While Russian markets, including the rouble, fell across the board, Rusal assets were hardest hit after the company warned it risked tipping it into technical default.

Its Hong Kong-listed shares fell more than 30 percent and its 2022 dollar bond slid more than 20 cents to around 67 cents, according to Tradeweb .

Traders in London said it was difficult to find accurate pricing for Rusal and some other Russian corporate bonds, sparking concerns there were difficulties in international clearing following the sanctions announcement.

Marketaxess, one of the world’s biggest multi-dealer trading systems, said it had removed Rusal debt from its platform, and concerns now centre on whether those willing to buy and sell the debt will be able to process deals via the post-trade services systems Euroclear and Clearstream.

“Banks are reluctant to (trade Rusal) when it’s so unclear whether they can clear it. So it’s pretty much impossible to get a quote,” said one London-based emerging debt trader.

“I’m not sure if Euroclear has already stopped clearing but the strong suggestions in the market is that they have to stop clearing Rusal bonds by the end of the month.”

There were no Tradeweb prices displayed on other Rusal bonds. One market player said the 2022 issue had been bid at 50 cents at one point while the offer was at 79 cents.

While U.S.-based investors have until May 7 to divest from sanctioned names — Rusal, EN+ and GAZ Group — a U.S. Treasury statement sub-section specifies the deadline also applies to entities “facilitating, clearing and settling transactions”.

‘UNCHARTED TERRITORY’

Belgium-based Euroclear said it was taking steps to ensure it remained compliant with the U.S. sanctions which it was assessing. It declined to comment on specific companies.

A spokeswoman for Clearstream said it had adapted its sanctions compliance programme accordingly, and that a detailed statement was due later.

Investment bank Barclays has suspended “ratings and estimates of United Company Rusal PLC following sanctions being placed on this entity”, according to a research note sent on Friday and seen by Reuters. Barclays declined to comment.

Investors also scrambled to dump other Russian corporate debt.

Polyus, not under sanctions but controlled by Kerimov’s family, saw its 2023 Eurobond down 16.2 cents to a record low 85 cents, according to Tradeweb.

Bonds from metals firm NLMK also tumbled, with issues maturing 2024 and 2023 down 3 cents and 2 cents respectively .

Bonds from Gazprom, also not sanctioned, tumbled as much as 4-5 cents.

Market players saw the latest sanctions round doing far more damage than past ones as they target existing securities of major corporations instead than prohibiting investors from buying new ones.

“This is uncharted territory. In the past the Treasury was very careful in two things - one, not to hurt U.S. investors, and second, they didn’t want to hit commodity markets. This time the sanctions are affecting (both),” a person at a U.S. asset management firm said.

The person, who spoke on condition of anonymity, said the naming of Deripaska prominently in the sanctions was significant, given his alleged ties with Trump’s campaign manager Paul Manafort and the global nature of his business.

“It’s a message to Russian oligarchs: ‘Ukraine is one thing but if you meddle in our elections the consequences will be severe.”

Meanwhile, Rusal’s troubles sent aluminium prices to four-week highs. (Reporting by Sujata Rao; editing by Mike Dolan and John Stonestreet)

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