Yandex bond woes are first step to state takeover

VK

07/03/2022 15:51

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Dasha Afanasieva
    LONDON, March 7 (Reuters Breakingviews) - Russia is turning
in on itself. Sanctions have hammered Moscow-linked stocks and
in New York shares in search engine Yandex  YNDX.O ,  YNDX.MM ,
until two weeks ago the darling of the Russian technology scene,
have been suspended. The trading hiatus may activate a bond
repayment it can’t afford. Even if it cuts a deal with
creditors, Yandex’s future looks Kremlin-controlled.
    The Securities and Exchange Commission suspended trading in
shares of Yandex and several other Russian groups on the Nasdaq
on Feb. 28  urn:newsml:reuters.com:*:nL1N2V32FZ due to regulatory concerns over
sanctions. Suspension for five days triggers a redemption clause
on a $1.25 billion convertible bond that Yandex doesn’t have the
resources to repay  urn:newsml:reuters.com:*:nL5N2V71QF. On Monday it appeared to have
secured a temporary reprieve when Nasdaq changed its trading
halt status to “additional information requested https://www.globenewswire.com/news-release/2022/03/07/2398133/0/en/Nasdaq-Updates-Trading-Halt-Status-in-Yandex-N-V.html
”.
    The group, which was worth $22 billion at the end of 2021,
isn’t itself sanctioned and isn’t considered close to President
Vladimir Putin. Given the near impossibility of remaining
politically neutral in Russia, it has had to walk a tightrope in
deciding how much data it shares with the authorities. That
means it’s unlikely to feature prominently on the West’s
sanctions hit list. Still, cutting a deal with creditors and
somehow avoiding default would be of limited use.
    Almost half of its revenue last year https://ir.yandex/financial-releases?year=2021&report=q4
 came from advertising. Local businesses will tighten their
belts in the wake of sanctions. And multinationals are
stampeding for the exit. Use of Yandex’s Uber-like ride-hailing
service, which represented 37% of revenue last year, will also
slump as a steep recession wipes out Russians’ disposable
income. Finally, foreign income from countries like Lithuania,
now itself fearful of a Russian invasion, will likely disappear
entirely. The 38% revenue bump for this year forecast by
analysts on Refinitiv before the Russian invasion of Ukraine
looks hopelessly outdated. Longer-term, a ban on Western
microchip imports raises worries about Yandex’s ability to
operate altogether.
    Yandex’s list of potential saviours is also short. Chinese
companies could see opportunity in its e-commerce arm as Western
sanctions boost domestic demand for phones and other gadgets
from the east. Overall, Putin may be its best bet. The Russian
leader wants to build a self-contained internet that would help
him keep tabs on his citizens while shutting out dissenting
voices. Yandex’s sprawling services could provide a handy tool,
especially in conjunction with lender Sberbank’s  SBER.MM 
burgeoning tech ecosystem and VK  VKCOq.L , a social-media
platform controlled by state energy giant Gazprom  GAZP.MM .
Western funds still holding Yandex shares will want to get out
as soon as they can.
    Follow @dasha_reuters https://twitter.com/dasha_reuters on
Twitter
    
    CONTEXT NEWS
    - Russian search engine Yandex, which also has a
ride-hailing and e-commerce business, warned late on March 3
that holders of its $1.25 billion convertible bond would have
the right to put these notes to the company at par plus accrued
interest if the Nasdaq-listed shares were suspended for more
than five days. March 4 marked the fifth day in a row the shares
were halted.
    - On March 7, Nasdaq said it was changing Yandex’s status to
“additional information requested” from the company, updating
the trading halt status.
    - Dutch technology investor Prosus said on March 7 it was
writing off its stake in Moscow-headquartered online platform
VK, which it said was valued on Prosus's books at $700 million.

    
 

 (Editing by Ed Cropley and Karen Kwok)
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