Russian steel giant Severstal battles to avoid default

March 24, 2022: Russian steel giant Severstal, whose main shareholder Alexei Mordashov is under EU sanctions, is fighting to avert what would be the first default by a major Russian firm since Moscow launched military action in Ukraine.

In a press release published on the London Stock Exchange website, the company said that a "test payment" it sent on March 16 had not "reached the account of the issuer", a Luxembourg group, because "the payment was frozen" by the latter's US correspondent bank, Citibank, "due to regulatory investigations".

Severstal said it was "looking to initiate" an application for licences from the "relevant competent authorities" in order to process the payment.

Severstal had until Wednesday to make an interest payment of $12.6 million (11.5 million euros).

"We cannot make a coupon payment in time to the holders of our eurobonds," director-general Alexander Shevelyov wrote on VKontakte social media.

"This is an extraordinary situation for us that arose through no fault of our own," he said.

"Severstal maintains a stable financial position, confirms its readiness and desire to carry out its debt obligations in full, and has the necessary resources for this," he added.

"Unfortunately, our western financial partner has frozen the processing of the payment, initiated by the company. We are continuing to consult with partners and are doing everything possible for the holders of the bonds to receive their funds," he said.

Citibank declined a request for comment from AFP.

After concerns that Russia would default on its debt, it paid $117 million in interest on two dollar-denominated bonds last week.

The US Treasury authorises payments on sovereign debt but not on private debt, under the terms of sanctions imposed in response to Russia's invasion of Ukraine.

Severstal itself is not under sanctions but its main shareholder, billionaire steel magnate Alexei Mordashov, was on March 2 added to the EU's blacklist due to his close ties with Russian President Vladimir Putin.

Individuals sanctioned have been hit by asset freezes and a travel ban.

Another case involved Evraz, a UK-incorporated multinational steel manufacturing and mining company in which sanctioned Chelsea Football Club owner Roman Abramovich is the main stakeholder.

The company said Monday it had had a debt coupon payment refused pending compliance by French correspondent bank Societe Generale before saying Tuesday it appeared the payment had reached a US paying agent.

Potash producer Uralkali meanwhile said it was in a similar situation with French bank Credit Agricole, which it said had refused a payment to creditors owing to the sanctioned status of billionaire Dmitri Mazepin, controlling stakeholder Uralchem, Uralkali's main shareholder.

Mazepin earlier this month sold a controlling stake having previously held 100 percent in Uralchem.

AFP/APP