Russia’s VK Seeks Debt Negotiations as Bond Redemption Looms

(Bloomberg) -- Russian social network operator VK Co. Ltd. may lack the cash to redeem its convertible bond and will start talks with bondholders to find alternative options, according to a filing on Tuesday.

The company’s global depositary receipts were frozen in London in the wake of Russia’s invasion of Ukraine. If trading in VK’s stock doesn’t resume before the end of the day on Wednesday, a delisting clause in the company’s convertible bond documentation will be triggered, allowing bondholders to request conversion of their debt into equity or for the bond to be repaid. 

“The company intends to start negotiations with all bondholders as soon as possible to discuss possible alternatives to the put option exercise,” according to the filing. There is “no guarantee” talks will be successful, the company said.

The principal outstanding on the convertible bond maturing in 2026 is $400 million and the company had $140 million of liquidity in foreign currency as of last week, of which about 60% is held outside Russia to support working capital needs, the company said. Hence, it would not have sufficient liquidity to meet a full repayment of the note, it said.

Under the bond terms, payment wouldn’t happen immediately. Investors have the right to redeem the bond in full, together with accrued interest, on the so-called put date, which is the fourteenth calendar day after the sixty-day period that kicks off when the delisting event occurs. 

Vladimir Kiriyenko, VK’s chief executive officer since December, has been sanctioned by the European Union and the U.S., but not by the U.K., where the company stock trades. His father, Sergei Kiriyenko, is first deputy chief of staff of Russia’s Presidential Administration and responsible for domestic policy. He is sanctioned by the U.S. and European Union over the poisoning and jailing of opposition leader Alexey Navalny.

VK is following the example of Russian peers Yandex NV and Ozon Holdings PLC, who kicked off negotiations with their bondholders under similiar clauses in their convertible-bond terms. They are among the first Russian corporates with foreign-denominated debt to resort to talks with creditors as international sanctions and local restrictions make it harder to transfer money out of Russia and meet payment obligations.

The pricing for VK’s convertible bond is unclear, as for many Russian securities currently. Most quotes show a bid price in the single digits, but a few have bid-ask gaps as wide as 60 cents on the dollar, data compiled by Bloomberg show. 

©2022 Bloomberg L.P.