Coupons went to the capital position – Finance – Kommersant

VTB’s refusal to pay coupons on “perpetual” subordinated bonds led to a significant drop in their quotations. In addition, investors temporarily lost interest in similar securities of other banks. The bank promises to return to payments after the implementation of measures “to strengthen the capital position.” At the same time, in the previous, more difficult from the point of view of the financial situation, months, the bank regularly paid coupons. Experts do not rule out the connection of this decision with the upcoming deal to buy FC Otkritie.

Reaction to solution VTB refuse to pay part of the coupons on perpetual subordinated bonds had a negative impact on securities quotes. These papers are listed on the Moscow Exchange, although they cannot be classified as liquid. Nevertheless, the ruble issues fell in price to 45-70% of the nominal value, the dollar ones – to 35% of the nominal value, in euro – to 30-50% of the nominal value. In most cases, quotes rolled back to the lows of this spring.

In addition, Artem Autlev, an analyst at Ingosstrakh Investments Management Company, notes that already on Tuesday, the bank’s shares fell by 7.5% against the background of this news, although then they recovered slightly.

At the auction on Wednesday, VTB shares looked worse than the Moscow Exchange index.

Alfa Capital portfolio manager Yevgeny Zhornist notes that the decision came as a complete surprise to investors. “The bank has not disclosed its results for several months, so we do not know its financial situation and why it decided not to pay,” he points out. This decision also had a negative impact on the subords of other banks – on Wednesday afternoon, “we observed a complete absence of bids for the purchase in this market segment,” says Mr. Zhornist.

As VTB explained earlier, the decision is temporary, and the ongoing measures “to strengthen the capital position” will allow “in the future to return to the payment of coupon income on these issues.” In addition, the bank is considering the possibility of replacing Eurobonds “with a local ruble subordinated instrument.”

At the same time, the issuer can refuse to pay coupons even without specifying reasons only in relation to “perpetual” subordinated bonds, the funds from which are accounted for in Tier 1 capital.

As Ekaterina Makeeva, partner and head of sanctions practice at A-PRO JSB, noted, “the terms of the issues provide for the issuer’s right to decide to refuse to redeem coupons unilaterally by notifying the holders of the securities.” Elena Mende, lawyer of the Baltic Bar Association named after Anatoly Sobchak, points out that perpetual bonds are intended only for qualified investors, therefore “the issuer has more rights when compared with conventional instruments.” At the same time, according to her, “it is not required to put such a right under any condition, including under the condition of deterioration of the financial stability of the issuer.” The creditor, neither in the event of the issuer’s refusal to pay the coupon, nor in any other case, can demand early redemption of the bonds, Ms. Mende explains.

According to Giorgi Okromchedlishvili, Senior Analyst at the ITS WM multi-family office, this circumstance made perpetual bonds a very attractive financing tool for a number of banks that had to comply with capital structure requirements. “They were willing to pay investors more coupons than they would with conventional bonds,” he notes. Issues of subordinated bonds VTB actively placed at the end of 2020 and all 2021. At the same time, the rates for the next coupon periods are quite high – 10-13% per annum in rubles, 5-7.3% per annum in dollars, 3.75-6% per annum in euros. At the same time, the bank does not have the right to pay dividends until it resumes the accrual and payment of coupons on perpetual subords, says Alexei Bulgakov, head of debt market analytics at Renaissance Capital.

This year, a number of banks (HKF-bank and Sovcombank) also stopped paying coupons on “perpetual” subordinated bonds. Such decisions were due to the fact that banks could not make payments in the interests of all investors, both foreign and Russian. At the same time, Sovcombank recently exchanged part of previous issues for subordinated bonds of the new issue.

At the same time, this year other banks, including VTB itself, paid coupons on perpetual subords, but in rubles, regardless of the currency in which they were issued.

Alexey Bulgakov explained that “banks under sanctions (MKB, Alfa, formerly VTB) pay coupons on perpetual subords only on securities with rights recorded in NSD.”

The payments were made during a period when the banking system was deeply unprofitable (according to the Central Bank, in the first half of the year, the loss reached 1.51 trillion rubles). At the same time, the head of VTB, Andrei Kostin, said in November that the bank had already begun to work with a profit (although there would be a loss at the end of the year), and the bank had planned “a fairly large profit” for the next year. Yevgeny Zhornist does not rule out that such a decision may be related to VTB’s purchase of FC Otkritie bank. “Officially, how exactly this deal will be structured has not yet been announced, but if the purchase is paid for in cash, this will lead to a decrease in VTB’s capital,” the portfolio manager notes.

Dmitry Ladygin, Vitaly Gaidaev, Ksenia Kulikova