VEON exchanges debts with investors

Since February 10, Russian holders of the nearest issue of VEON Holdings Eurobonds have been given the opportunity to part with them. In one of the proposed options, Eurobonds can be exchanged for new five-year Vimpelcom ruble bonds, in the other case, they will be redeemed at a discount. This is the first deal to exchange VEON Eurobonds as part of its exit from the Russian market and the sale of VimpelCom. However, experts believe that the proposed terms are more beneficial for the issuer, while investors would be satisfied with the issuance of replacement bonds or their redemption at face value.

On February 10, Alor+ investment company starts collecting applications from holders of one of the VEON Holdings Eurobond issues (with redemption on February 13) for an exchange or redemption. In the first case, it is proposed to redeem the bonds at face value (plus accumulated coupon income, ACI) with the simultaneous redemption of the ruble bonds of the new VimpelCom issue with a maturity in February 2028 and a coupon rate of 10.55% per annum for the amount received. In the second case, Eurobonds can be redeemed at 92.82% of the face value (plus ACI). The offer applies only to investors holding rights to bonds held in Russian depositories. Applications are accepted until March 3rd.

The deal will be the first stage in the process of Russian investors exiting VEON Holdings Eurobonds.

This was one of the conditions for the sale of its subsidiary VimpelCom to Russian top management, agreed with the foreign investment government commission (see “Kommersant-Online” of February 3).

Vimpelcom’s press service explained that deals are planned for all Eurobond issues, the terms will be disclosed next week. The start of new transactions is scheduled for the end of February.

As Alor Broker Deputy General Director Maxim Dremin explained, the replacement of all securities is expected to be carried out before March 15. According to him, the urgency of the deal on the first issue “is due to the fact that on February 13 the next accumulated coupon income is to be paid, and so that it does not get stuck in Euroclear, Russian holders are given the option to exit the papers before this date.”

VimpelCom noted that now there are consultations with the holders of securities, which show “a high readiness to carry out transactions on the proposed terms.” According to Maxim Dremin, the buyout price of 92.82% (plus ACI) is economically justified, “based on the current market for these securities and the risks associated with them.” In addition, the scheme has been agreed with a number of large holders, he notes.

However, judging by the Kommersant poll, not all market participants are satisfied with the proposed options.

It is difficult to call the listed conditions favorable if we take into account that holders of securities in the “external contour” can exercise the right to buy back at 102% plus NKD, says Alexei Kozlov, an analyst at FG Finam.

According to Kommersant’s source in a large brokerage company, in the first case, bondholders are offered “either to bear the risks of a decrease in quotations in the secondary market, or to sit in the securities for five years, but take on the currency risk.” In the case of a buyback at a discount, he said, the missed coupon payments, “which, apparently, holders at NSD have not received since March last year, will not be paid.”

Dmitry Alexandrov, Managing Director of Ivolga Capital, notes that the report refers to the risk that the volume of ruble bonds issuance is limited. However, the planned volume itself is 20.5 billion rubles, this “will be enough to meet potential demand,” the expert believes.

Market participants believe that the issuer could accommodate investors. “Beautiful options for resolving the issue would be the replacement of bonds – in this case, the maturity would coincide with the original,” believes Dmitry Alexandrov.

VEON is currently using the current situation in its favor, the interlocutor of Kommersant from a large brokerage company believes, while other issuers follow the path of either fair replacement (Gazprom, LUKOIL, PIK, MMK, Borets, Sovcomflot “, “Metalloinvest”), or redemption of debts at face value.

Ksenia Kulikova, Vitaly Gaidaev, Yulia Tishina