Home Debt bne IntelliNews – Raiffeisen Bank International kills €1.6bn Deripaska debt swap deal due to US pressure

bne IntelliNews – Raiffeisen Bank International kills €1.6bn Deripaska debt swap deal due to US pressure

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Austria’s Raiffeisen Bank International (RBI) pulled a controversial debt swap deal with sanctioned Russian oligarch Oleg Deripaska at the last minute on March 21 that would have allowed it to repatriate €650mn of earnings trapped in Russia, the Financial Times reports.

The Vienna-based banking institution had been gearing up to offload €650mn of “additional tier 1” (AT1) bonds, a form of debt designed to absorb losses in times of financial distress, which had attracted over €1.6bn in investor interest.

The decision to withdraw the bond issue came shortly before the pricing was finalized after Reuters reported that RBI was under pressure from the US not to go ahead with the deal. The bank’s shares dropped 8.7% on the news.

As reported by bne IntelliNews, the US has been pressuring RBI to curtail its business in Russia, but the Austrian bank, which made its fortune as an early investor into Russia, has been very reluctant to leave. As covered in detail by bne IntelliNews, RBI came under heavy regulatory pressure to come up with an exit plan from Russia, the country where it made 60% of its net profit last year. RBI has scaled down its Russian business and is reportedly considering the sale of the business as a whole.

The proposed bond offering, boasting an 8.5% yield and a December 2029 maturity, was earmarked for the repayment of an existing AT1 bond.

This incident underscores the resilience of the AT1 market, which had previously been unsettled by the downfall of Credit Suisse, where regulators permitted the erasure of $17bn worth of AT1 bonds, albeit with a minor compensation for shareholders, the FT reported. Typically, AT1 bonds are perceived to precede equity in terms of balance sheet precedence. In the wake of the announcement, RBI’s existing AT1 bond values experienced a modest decline.

RBI remains the largest European bank still operating in Russia. Its main rival Société Générale pulled out after the war in Ukraine started, selling its local Russian bank back to oligarch Vladimir Potanin.

Nearly half of RBI’s €2.1bn profits last year were attributed to its Russian subsidiary, a significant increase from the pre-war figure. However, capital controls imposed by the Central Bank of Russia (CBR) following the invasion of Ukraine means that RBI’s Russian earnings remain trapped in Russia.

The disputed deal with Deripaska involves RBI’s Russian subsidiary acquiring his 28% stake in Strabag, a leading European construction firm, based in Austria, in return for cash. This transaction, which is pending Kremlin’s special approval, has reportedly drawn close scrutiny from US authorities, potentially leading to its dissolution.

Despite labelling the Reuters report as speculative, RBI has affirmed its commitment to ensuring the Strabag deal’s compliance with all relevant sanctions, vowing not to proceed with any transaction that could violate these sanctions or jeopardize the bank’s standing.

This is not the first time that RBI has tried to broker asset swap deals with sanctioned Russian entities, as they attempt to remake their portfolios in light of sanctions and try to extract value from their western investments.

RBI has also worked on a potential €400mn agreement with the state-owned banking giant Sberbank, that has significant frozen European assets, but which was eventually abandoned when Sberbank bank sold those assets to an alternative buyer.

Thanks to its continued presence in Russia, the government in Ukraine has labelled RBI as a “international sponsors of war”, which pressures Western companies to refuse to do business with the bank.


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