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Bailout concern batters Russia's Otkritie Bank subordinated debt to record low
September 1, 2017 / 1:51 PM / 23 days ago

Bailout concern batters Russia's Otkritie Bank subordinated debt to record low

MOSCOW, Sept 1 (Reuters) - The price of subordinated bonds issued by Russian lender Okritie hit all-time lows on Friday after a central bank deputy governor told Reuters some holders of this last-to-be-repaid debt stand to lose their money in a bailout of the private lender.

Vasily Pozdyshev said in an interview some of Otkritie’s subordinated bonds may be converted into equity in the bank. Those subordinated bonds whose terms do not require conversion, however, could be written down, if Otrkitie’s capital adequacy falls below a certain level, he said.

“We don’t rule out a possible conversion of subordinated bonds. Those subordinated loans, the conditions of which do not envisage a conversion, will be written down according to the law,” he told Reuters.

Subordinated debt is unsecured and the last to be paid, if at all, in the case of liquidation.

Otkritie borrowed $500 million in April, 2012 and $300 million in December, 2012 by issuing seven-year subordinated bonds.

Otkritie’s subordinated dollar bond maturing in December 2019 was quoted around 35 cents, a record low price. The issue traded at par at the start of August

Pozdyshev said a decision on whether to write down the bonds or convert them into equity will be made by a temporary administration that the central bank had sent to manage Otkritie. The decision will be based on Otkritie’s capital adequacy ratio, he said.

According to Pozdyshev, the Russian central bank may need to inject up to 400 billion roubles ($7 billion) into Otkritie group’s capital as a part of a bailout.

Otkritie’s senior bonds, which won’t be included in the bank’s capital or written down, recovered after a steep fall in August.

Yields of Otkritie’s bonds maturing in April, 2018 stood at 9.3 percent after rising as high as 153 percent late last week . ($1 = 57.7235 roubles) (Reporting by Andrey Ostroukh Additional reporting by Sujata Rao in London Editing by Jeremy Gaunt)

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