7 Jul 2023 15:17

SOGAZ sees buyback terms for Eurobonds of VEON subsidiary as non-market; asks authorities to protect investors

MOSCOW. July 7 (Interfax) - The terms and conditions of the sale by the international telecommunications holding VEON of its Russian subsidiary, VimpelCom, which provide for the purchase of the latter of VEON Eurobonds, has not suited all shareholders.

SOGAZ , whose SOGAZ-Life structure owns VEON Eurobonds, considers that VimpelCom bought the Eurobonds on non-market terms. The company has requested that the Economic Development Ministry develop measures in order to ensure the rights of Eurobond holders. The corresponding letter was sent at the end of June by the chairman of the board of JSC SOGAZ, Anton Ustinov, to Economic Development Minister Maxim Reshetnikov, a source familiar with the contents of the letter told Interfax.

A buyback the seller did not like

According to the source, the letter states that SOGAZ-Life insurance holds VEON ruble- and dollar-denominated Eurobonds, both issues maturing in 2025 and both held with National Settlements Depositary, or NSD. The bonds were purchased to cover obligations under insurance contracts with individuals.

The issuer of Eurobonds, despite the fact that its main asset is the leading Russian communications operator VimpelCom, is not making a proper effort to settle with investors from Russia and continues to pay on Eurobonds through foreign infrastructure; such payments are actually frozen and are not reaching holders whose bonds are kept at NSD, SOGAZ wrote.

The SOGAZ CEO recalled that since the autumn, "non-public redemption of bonds on non-market conditions with a significant discount to the market price" had been carried out through an intermediary, the source said, quoting the letter. At the same time, VEON in the spring offered to buy several issues of bonds from foreign holders at a price above face value.

The letter says that VimpelCom cites a decision by the Russian government's foreign investment commission to justify what SOGAZ deems to be unlawful actions towards Russian investors. The decision, dated February 1, 2023, is related to the approval the issuer's sale of VimpelCom to its management under certain conditions. Digital Development Minister Maksut Shadayev said in February that the foreign investment commission approved the deal on the condition that VimpelCom buys at least 90% of VEON Eurobonds from Russian investors. The text of the document approving the transaction, like other similar decisions of the government commission, was not published.

The SOGAZ CEO's letter draws attention to the fact that the risk of ending up as one of the 10% of Eurobond holders, payments on which will effectively be frozen by foreign banks in unfriendly jurisdictions, "led to panic" among Russian investors. The issuer took advantage of the situation and in February-March of this year, through a broker, bought back a significant volume of Eurobonds from Russian investors "at unilaterally established non-market prices," the source quotes the letter as saying. Now the issuer, through a broker, is saying the bonds cannot be repurchased at market prices, which differ from the prices offered to investors in February-March, in the form of an ultimatum, referring to a violation of the government commission's decision, the letter says.

The source said SOGAZ considers the Eurobond issuer's actions "to be patent discrimination against the rights of Russian investors, justified by a liberal interpretation of decisions by government bodies." In this regard, the company asks the Economic Development Minister to give instructions or measures to be drafted to uphold the rights and interests of Russian investors when the government commission's decision is being implemented, source said.

VimpelCom declined to comment. Interfax has asked the Economic Development Ministry to comment.

Payment difficulties

VEON cannot currently convey payments on Eurobonds to investors whose bonds are held through Russian infrastructure, since international clearing systems are blocking such transfers to the National Settlement Depository due numerous sanctions imposed against Russia. Russian borrowers have been solving the problem of getting payments to holders with rights in Russian depositories through split payments and the provision of local "substitute" bonds to Russian investors.

VEON did not formally have such obligations - the company itself is not a Russian borrower, and VimpelCom is neither a co-obligor nor a guarantor under the notes. Even so, VimpelCom on September 20 received correspondence from the Russian Finance Ministry in which the latter stated that it "considers it appropriate that VimpelCom ensure the fulfilment of obligations under the notes to holders of Eurobonds whose rights are recorded by Russian depositaries," VEON has said.

Resolving the issue of payments to Russian holders of VEON Eurobonds was a condition for the authorities to agree on a deal to sell its Russian subsidiary, VimpelCom, to local management, announced in November last year. VEON entered into an agreement to sell VimpelCom by June 1, 2023.

VEON has five issues of dollar-denominated Eurobonds and three issues of ruble Eurobonds outstanding. 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 accrued coupon income, 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.

Alor Broker (Alor+ LLC) in February-March 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.

Under one exchange option, bondholders could sell their Eurobonds at 100% of face value plus ACI and simultaneously buy VimpelCom bonds maturing on February 14, 2028 for the same amount. Under a second option, the Eurobonds would be bought out at less than face value plus ACI and investors would not need to buy any VimpelCom bonds; the price ranged from 79.6% to 92.8% of face value, depending on the issue.

VimpelCom said in a report at the end of March that it had bought back Eurobonds issued by VEON with a total face value of $1.26 billion and 23.9 billion rubles in February-March. Also during this period, exchange-traded and commercial bonds were issued with a total face value of 119.3 billion rubles. VEON itself said at the beginning of May that VimpelCom bought back Eurobonds with an aggregate face value of $1.6 billion, which is comparable to the figures given in VimpelCom's report.

VEON said in April that it had commenced the period for exercising a put option on its 2023 Eurobonds to holders in foreign infrastructure. The purchase price under the option is 102% of face value plus accrued coupon interest.

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. First Asset Management dropped its claims against the company in mid-April, explaining that all the Eurobonds it held in trust had been purchased.

VEON said on May 30 that is had submitted all necessary documentation to Euroclear, Clearstream and registrars for cancellation of VEON's Eurobonds held by its subsidiary VimpelCom. The company said it was now entering the final stages in the closing of the sale of VEON's Russia operations, which was announced in November 2022. The holding has not published any further information on this subject since then.