Russian bondholders form pressure group after defaults

Financial News

Jason Corcoran in Moscow
06 July 2009

A group of disgruntled bondholders in Moscow have formed a club to uphold their rights in the wake of 60 Russian corporate bond defaults since last September.

Members claim some Russian issuers are avoiding liability by disposing of assets and initiating voluntary bankruptcy and insolvency procedures.

A third of Russian domestic bond issuers have defaulted since the final quarter of last year, according to Russian law firm Liniya Prava.

The Moscow Club, whose members include international banks, Russian banks, asset management companies and pension funds, is being spearheaded by US law firm Baker & McKenzie and Anglo-Russian consultancy RB Partners.

Members are known to include representatives from Italian bank UniCredit, Russian brokerage Otkritie, investment fund VR Group and private equity firm SCP.

Max Gutbrod, a partner at Baker & McKenzie, said the lack of regulation, the uncertainty of rules and increasingly errant corporate behaviour had brought bondholders together. He said: “Our immediate focus is on the really bad defaults where everything has disappeared. Issuers are taking advantage of the lack of organisation of bondholders and are making unreasonable proposals and profiting from the chaotic restructuring processes.”

Members cited defaults by factoring firm Eurokommerz, media holding RBC, baby food producer Nutritek and sugar producer Razgulay for their action.

Rating agency Moody’s last week cut Eurokommerz’s long-term ratings to C from Caa2. It said the company was in default on the majority of its obligations after it first defaulted on its coupon payment for 3bn roubles ($107m) in domestic bonds last December. It said that “bankruptcy is now the most likely scenario”. Eurokommerz did not return calls for comment.

RBC, whose debts are believed to be $200m, first defaulted on a $45 rouble bond payment in March.
A spokesman said a new chief executive had been installed and the company could not comment. Board members voted last week to terminate the power of the company’s head, Yuri Rovenski, who was one its founders.

Razgulay and Nutritek declined to comment.

The Moscow Cub said it aimed to develop a strategy to negotiate with issuers and their agents.