July 17, 2017 18:19
Freeze on assets in Rosneft lawsuit sets stage for technical default on Sistema debt of 4 bln rubles (Part 2)
MOSCOW. July 17 (Interfax) - Sistema (MOEX: AFKS) has announced a technical default on the company's debt obligations for a sum of around 3.9 billion rubles after its assets were seized under court proceedings with Rosneft (MOEX: ROSN) and Bashneft (MOEX: BANE), the company said in a statement.
As reported earlier, the court granted injunctions on Rosneft's lawsuit by freezing a 31.76% stake owned by Sistema and Sistema-Invest of Mobile TeleSystems (MTS) (MOEX: MTSS), 100% of Medsi and 90.47% of Bashkirian Power Grid Company (BPGC).
AFK said that non-compliance on certain conditions on a number of debt obligations, which is the basis of the technical default, was exclusively the result of the court's decision to seize the company's assets and is strictly of a formal nature.
"The corporation is servicing and plans to service all its credits and financial obligations in the future simultaneously and in the full amount," Sistema said.
At the end of Q1 2017 the corporation's net debt totaled 73.8 billion rubles, down 11.6% compared to the previous quarter. The holding's monetary position totaled 20.5 billion rubles. In Q1 2017 Sistema posted 21.2 billion rubles from monetization and dividends from subsidiaries. The group's revenue in Q1 2017 totaled 163 billion rubles.
Analysts are worried that the announcement of a technical default on the debt obligations formally could lead to a cross-default on other liabilities.
"We believe the company could face the risk of additional technical defaults on its other credit lines at a maximum sum of up to 34 billion rubles," Otkritie Capital Analyst Alexander Vengranovich said in a report. In addition, Sistema now faces the risk of potentially cross-defaulting on Eurobonds. The possibility of such a situation has been noted in the covenants. "The company needs to sign an official agreement with banks over the course of 30 days in order to avoid defaulting on its Eurobonds," the analyst said.
Sistema told Interfax that a technical default is "a formality and will not lead to a cross-default on other liabilities."
MTS reported that technical defaults, just like the seizure of assets, would not impact the mobile operator's business and would not have any consequences on the company's existing debt instruments.
In May Rosneft and Bashneft submitted a lawsuit against Sistema. The claims in the case initially totaled 106.6 billion rubles, and then later increased to 170.6 billion rubles because of the ruble's depreciation against the dollar. According to the plaintiffs, the claims were determined on the basis of adding together a number of losses suffered by Bashneft as a result of Sistema's restructuring of the oil company in 2014.
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