10 Feb 2023 09:33

Alor Broker offers to buy out Veon 2023 Eurobonds or swap them for Vimpelcom bonds

MOSCOW. Feb 10 (Interfax) - Alor Broker (Alor+ LLC) has proposed to all holders of Veon Holdings Eurobonds maturing in 2023, who as of January 31 kept their Eurobonds in Russian depositories and in Russian infrastructure, to buy out the bonds or swap them for the exchange-traded bonds of Vimpelcom, the telecom group's Russian division, the broker said in a statement.

The offer applies to the dollar-denominated Eurobond issue that was initially supposed to be redeemed on February 13, 2023, the coupon rate on which is 5.95%.

Under the exchange option, bondholders can sell their Eurobonds at 100% of face value (plus accrued coupon income (ACI)) and simultaneously buy PJSC Vimpelcom bonds maturing on February 14, 2028 for the same amount.

Under the other option, the Eurobonds will be bought out at 92.82% of face value (plus ACI) and investors do not need to buy any Vimpelcom bonds.

Transactions will be carried out from February 10 to March 3, and settlements will be made in rubles at the Central Bank of Russia's exchange rate on the date of the transaction.

Alor Broker said settlements will not include payment of coupon income on Eurobonds that was previously paid but not received by bondholders

The broker also said that the size of the issue of Vimpelcom bonds for which the Veon Eurobonds may be exchanged is limited and might not be sufficient to meet demand for this option from investors. These bonds will be placed on February 10 and have a coupon rate of 10.55%. Vimpelcom has only disclosed the "approximate" number of bonds from this issue being placed and it totals about 20.5 billion rubles.

Last November, Veon proposed to holders of two dollar-denominated Eurobond issues maturing in 2023 to defer their redemption by eight months to allow for a corporate restructuring. In this case, Eurobonds maturing in February and April would instead be redeemed in October and December 2023, respectively. The deferral would give Veon time to complete the sale of Vimpelcom, the company said at the time.

The arrangement proposed by Veon was endorsed by Eurobond holders and approved by a London court at the end of January.

Resolving the issue of paying the Russian holders of Veon Eurobonds was a condition for the Russian authorities' approval of the sale of Vimpelcom. Digital Development Minister Maksut Shadayev said last week that the government commission for foreign investment approved the deal on the condition that Vimpelcom will buy back at least 90% of Veon Eurobonds from Russian investors. The conditions must be equal for all bondholders, he said.

Long road to settlements

Veon cannot currently convey any payments on Eurobonds to bondholders whose rights are recorded in Russian infrastructure, since international clearing systems are blocking such transfers to the National Settlement Depository (NSD) due to sanctions against Russia.

Russian borrowers are solving the problem of paying investors who hold their bonds through Russian depositories by making separate payments and offering Russian investors local "replacement" bonds.

However, Veon technically did not have such obligations, since it is not a Russian borrower and Vimpelcom is not a debtor or guarantor of the group's Eurobonds. Nonetheless, last September the group's Russian subsidiary received a letter from Russia's Finance Ministry saying that the ministry "believes it is advisable that PJSC Vimpelcom ensure fulfilment of obligations on Eurobonds to holders whose record of rights is held in Russian depositories," Veon reported earlier.

Veon now has five issues of dollar-denominated Eurobonds and three issues of ruble Eurobonds outstanding.

Renaissance Capital analysts said in a report earlier that at the end of November-beginning of December holders of all Veon Eurobonds held through Russian infrastructure were offered a buyback through a local broker at a price of 82-90% of face value without payment of ACI, depending on the duration of the bonds and regardless of the currency (dollars or rubles), or the option to swap their bonds for ruble-denominated exchange-traded Vimpelcom bonds with duration of four to six years. The offer "was not particularly generous," the report said.

Analysts from the PRO Bonds Telegram channel said the new settlement terms for the first issue maturing in 2023 appear somewhat better than the previous ones, when investors were given a choice between swapping for ruble bonds with a 7.2% coupon maturing in December 2027 or tendering their bonds for buyback at 90% of face value without ACI.

They also recalled that, under the arrangement approved by Eurobond 2023 holders, investors on the outside perimeter will be able tender bonds for buyback at 102% of face value plus ACI. Other investors will get 102% plus ACI on the new maturity dates (October 13 and December 27, respectively) and one more interim coupon (August 13 and October 26). "However, in our understanding, all these payments will be made according to the previous arrangement, meaning through an external depository," the analysts said.

Proactive investors

The Russian holders of Veon's Eurobonds did not remain passive observers while the group negotiated the fate of its key asset with the authorities. They include leading Russian asset management companies, which filed a series of lawsuits in arbitration courts.

Claims against Vimpelcom were filed by Leader Management Company, Transfingroup, First Asset Management and Rosgosstrakh Life, among others. Leader even asked for an injunction against the sale of Vimpelcom until guarantees were included in the deal for payments to Russian holders of Veon's Eurobonds, but the motion was denied.

None of these lawsuits have been argued on their merits yet. Hearings are currently scheduled for February-April.