After Nasdaq stock suspension, Yandex could default on $1.25bn convertible notes

After Nasdaq stock suspension, Yandex could default on $1.25bn convertible notes
Russia is facing the possibility of defaulting on its debt thanks to sanctions on the central bank's reserves. First up might be tech giant Yandex's $1.25bn of convertible notes. / wiki
By East West Digital News in Moscow March 16, 2022

Yandex, arguably the most successful and emblematic Russian digital company over the past 25 years, could default in a matter of days. The company warned about this risk even though none of its entities, main shareholders, directors or managers have been targeted by western sanctions, reports East-West Digital News (EWDN).

The threat originates in the fact that, this past Monday, the Nasdaq halted trading in stocks of many Russia-based companies, including Yandex, which had been listed there since May 2011.

The company explains: “Under the terms of our 0.75% Convertible Notes due 2025, in the event of a suspension of trading of our Class A shares on Nasdaq of more than five trading days, the holders of those Notes would have the right to require us to redeem their Notes at par plus accrued interest. The current principal amount outstanding is $1.25bn. In the event that such redemption right was triggered, (…) Yandex group as a whole does not currently have sufficient resources to redeem the Notes in full.”

Yandex “would not have sufficient resources to redeem a majority of the Notes” should it be prevented from transferring funds from its Russian subsidiaries to its Dutch parent company. This company, together with all foreign subsidiaries, currently hold only some $370mn in cash.

Unless it could secure “additional financing,” the company’s “short-term financial position and liquidity” would be threatened even if Yandex could meet its redemption obligations under the Notes in full.

The company sees another threat in case the economic downturn in Russia would continue as a result of sanctions, ruble depreciation or “negative consumer sentiment:” all these factors could have a “material adverse effect” on its results.

Operations also at risk

Yandex’s looming nightmare would not stop here. Even though it said it was operating as usual right now, the company warned its operations could be significantly affected “over time,” in case of any “prolonged suspension of supplies of hardware, software or other technology used in our business or offerings,” should Yandex be unable to secure “alternative sources.”

Yandex referred to “a number of companies based in the US, UK, EU and elsewhere [that] have indicated that they are currently suspending supplies and services to customers in Russia.”

Yandex also faces a potential “reduction of the number and selection of goods we are able to offer through Yandex.Market,” its domestic marketplace, as many suppliers have announced they will stop sale of consumer goods to Russia while several logiostics providers already ceased shipments to Russia.

Meanwhile, the company believes its “current data center capacity and other technology critical to operations will allow us to continue to operate in the ordinary course for at least the next 12 to 18 months.”

Legal exposure

Acknowledging “press speculation regarding the possibility that the Russian government would take steps to effect changes of control of companies or assets in Russia in response to the sanctions,” Yandex warns that any such action — even though it is “not aware of any plans in this regard” — would have a “material adverse impact” on company value.

This due to the fact that, while the group’s parent company is registered in the Netherlands, the better part of its operations and assets are located in Russia.

Risks related to “the current geopolitical situation” were referred to in Yandex’s latest SEC annual report (filed on April 1, 2021). The “adoption and maintenance of international […] sanctions against Russia […] may have a material adverse effect on the company — as well as ruble decline, disruption in supply of products and services, as well as “any regulatory limitations on the internet in Russia,” warned the company at that time.

 

This article first appeared in East-West Digital News (EWDN), a bne IntelliNews partner publication.

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