Clock runs out on Russian steelmaker Severstal's bond interest deadline as Citi blocks payment

RUSSIAN steelmaker Severstal appears to have missed a Wednesday deadline to make good on a US$12.6 million interest payment to bondholders.

The money was originally due to creditors by Mar 16, but paying and transfer agent Citigroup wouldn't remit the cash without the company receiving express permission from the US Treasury. With a 5-day grace period now expired, there's been no sign that the payment has been passed on.

Severstal would become the first Russian company to fail to meet a deadline on its foreign-currency debt since the war in Ukraine began. The company said in a statement earlier on Wednesday that it's applying for the licences required to process the payment, and that it expects the situation to be resolved as soon as possible.

Any missed payment is likely to exacerbate investor anxiety at a time when there's already significant uncertainty about whether Russian firms and the government can continue honouring their debt obligations, given the sanctions and capital controls in place. Holders of Russia's sovereign bond maturing in 2029 also haven't received payment of a US$66 million coupon payment due this week.

A spokesperson for Citigroup declined to comment, as did Severstal's press department.

While the steelmaker itself is not sanctioned, controlling shareholder Alexey Mordashov is on the European Union and UK's sanctions lists. Still, because he's not included in any US restrictions, Severstal refrained from preemptively applying for a permit from the US Office of Foreign Assets Control, according to a person with knowledge of the situation, who asked not to be identified because they aren't authorised to speak publicly.

A spokesperson for the Treasury declined to comment on dealings with a company or individual the US hasn't sanctioned.

Severstal is seeking to "liaise with the relevant authorities to pursue a broader solution in order to minimise unintended effects of the sanctions restrictions on the noteholders," according to a statement.

The company, in an irregular move, also urged bondholders to contact Citigroup to "promote a faster outcome".

Creditors may opt to wait several days to see if Severstal can come up with the necessary permits to pay the interest, rather than accelerate the debt and demand full repayment.

In the event of a default, Severstal's international operations and claims would only cover 16 per cent of the company's foreign unsecured debt, according to estimates by JPMorgan Chase & Co analysts on Mar 4. They only relied on receivables claims from export sales, because Severstal's production facilities are located in Russia.

Severstal's interest payment is due to holders of US$800 million in so-called loan participation notes that mature in 2024. The debt, which pays an annual rate of 3.15 per cent, was issued by Luxembourg-based unit Steel Capital. BLOOMBERG