Leading consumer credit bank Russian Standard (Russky Standart) bank, owned by Rustam Tariko, defaulted on $451mn worth of Eurobonds, London's branch of Citibank announced in a document quoted by Vedomosti on November 29.
Russian Standard Ltd issued Eurobonds in 2015 as part of restructure of two previous issues of $350mnn and $200mn maturing in 2020 and 2024, respectively. The bonds holders received 18% of the older bonds' nominal value in cash, and new bonds for the remainder were issued with a coupon of 13%, maturing in 2022 and backed only by 49% in Russian Standard bank.
Now Tariko is facing the loss of that 49% stake in his bank, while bonds holders may also demand seats on the company's board and initiate an audit.
Earlier in November, Russian Standard Ltd began negotiations with bondholders about possible restructure, Vedomosti reported, quoting the company's representative as saying that the negotiations are going "in a constructive way".
The risk of a default became real on October 30, when the bank did not pay a coupon due then, confirming the fears of bondholders that it was in trouble but received no explanations from the bank.
The pioneer of unsecured consumer lending, Russian Standard strategy was to finance its loans by raising long, cheap money on the international markets to lend short and expensive at home, a strategy that exposed it to big currency exchange risks. The bank has been struggling since the ruble devaluation at the start of 2015.
According to previous reports, Russian Standard was considering pulling the coupon on the bonds and giving out or selling the shares of the bank to investors. The bank is Russia's 28th largest in terms of assets (RUB331bn) and 21st in terms of capital (RUB47.2bn).
The bank got in trouble in 2015 prompting Standard & Poor's to downgrade the name from B- to CCC- and pushing Tariko to inject equity in the bank.
However, recently the holding's eponymous vodka business has been booming, largely thanks to the fact the government has almost completely eradicated illegal vodka production.