ECONOMY

Bondholders With Cash Stuck in Russia Firms Have Limited Options

International creditors of Russian borrowers that can’t — or won’t — service their debts will have a hard time getting their money back, according to analysts and investors.

That’s because Russia’s isolation from most of the developed world’s legal and financial systems renders the traditional route bondholders take to get their investments back almost futile. So long as the nation’s war with Ukraine rages on, getting local courts to enforce rulings seems unlikely, and that’s prompted some investors to discount the corporates’ assets in Russia.

“If you’re a bondholder, you can sue them, but your ability to actually get recoveries is going to be fairly limited in many cases, especially when you can’t have any rulings applied in Russia,” said Maximilian Hess, a fellow at the Foreign Policy Research Institute in London. “These bonds are rightfully being marked down to cents on the dollar or even zero.”

The best, and in some cases the only realistic option, is to wait, according to five bondholders of Russian corporate bonds, especially since companies have shown that bond-payment deadlines are being missed due to restrictions beyond the firms’ control. So far, four companies have run out of time to service their debts, and in each case the firms’ payments were stuck in financial plumbing due to compliance reasons. Steelmaker Severstal was the first, followed by Russian Railways, EuroChem and Chelyabinsk Pipe Plant for foreign-currency bonds.

That number will likely grow if the conflict isn’t resolved and sanctions on Russia, some of its businessmen and companies, aren’t lifted.

Some Russian companies have assets outside of the country. JPMorgan Chase & Co., the biggest U.S. bank, won a court order authorizing Gibraltar’s port authority to detain a 73-meter (240-foot) yacht Axioma owned by Dmitry Pumpyansky. It was an unusual move by officials of the British territory, but they said they seized the vessel “in the interests of creditors with proper claims.”

Below is an outline of the options available to bondholders based on research notes and interviews with investors, analysts and restructuring advisers. Most are neither tried nor tested:

Seize international assets:

Claims against international trade receivables:

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