Certainly a difficult situation was experienced by many Russian issuers whose depositary receipts were traded on the LSE or Nasdaq until recently, and there were about a dozen of them. Ozon Holdings LLC (MCX:OZONDR) has been in a whirlpool of events since March of this year, when Nasdaq suspended trading in shares of all Russian companies, and, as a result, Russian issuers “unanimously” moved out.

However, the Ozon case turned out to be burdened by the company's holding of convertible bonds, which forced the management of the online vendor to simultaneously deal with the listing suspension and negotiations with its convertibles’ bondholders. At some point, it seemed that the company would take a very long time to resolve the difficulties with the technical implementation of its force majeure strategy, but in the end, it got out of this non-standard situation in a reasonable time and was able to reach a compromise with its bondholders regarding the parameters of early redemption.

As a result of arduous months-long negotiations, Ozon managed to agree with the committee of creditors on the forthcoming redemption of its bonds for $750 million ahead of schedule and at a discount. According to a recent press release, those who agreed to receive payments in rubles shall receive up to 85% of the nominal value, and those in dollars will receive up to 67% of the face value. The company explains the difference by the fact that in order to make payments in dollars, it will have to transfer part of its own funds to Cyprus (this was authorized by the Ministry of Finance) and, therefore, incur additional transaction costs due to known limitations in the operation of the financial infrastructure and banking commissions.

So, at the moment, we know that the company managed to agree on the terms with the owners of 36% of the bond tranche. A lock-up agreement has been signed, which will be valid until November 22. Now, for the decision on early repayment of convertible bonds under these conditions, bondholders must vote at a special meeting scheduled for October 17th. Then it will take another couple of weeks to transact designated payments.

The presence of a discount is a consequence of some new reality. In a normal situation, bondholders would have two options – to hold their papers to maturity, receiving the coupons due, or to sell them on the stock exchange. But the pandemonium began precisely in connection with the exchange event in the context of the Nasdaq listing due to sanctions, the fact which was not recognized by governments as force majeure. Although there are no official rules for determination of such artificial discounts, their presence and depth, in my opinion, are adequate to the price and the general market circumstances. Foreign funds not only lost the ability to trade these securities, but also to display them correctly on their balance sheets, which caused tensions with auditors. Thus, the discount was formed as a result of some kind of compromise between the issuers and holders of the relevant securities. Discounts in over-the-counter transactions quickly reached levels as high as 50%.

Ozon issued a $750 million convertible note in February 2021 maturing in 2026. But since the end of February, due to Nasdaq sanctions, trading in Ozon depositary receipts has been suspended, bondholders have the right to demand early repayment from the company. Being caught by surprise, Ozon did not have a specific case for the mandatory early payment of all 100% at once in the absence of any violations on its part, and thus many months of difficult negotiations were initiated with the most active owners of bondholders in search of a compromise.

If we talk about examples of Russian companies that found themselves in a similar situation, then Yandex (MCX:YNDX) also had convertible bonds for $1.25 billion. Yandex paid bondholders $140,000 and 957 shares of Yandex N.V. for every $200,000 of the face value of the bonds. That is, taking into account the weighted average share price for that period, in terms of dollars (dollar quotations discontinued in early March due to sanctions, but if we take their price on the Moscow Exchange as a basis, then it turned out to be something around $ 36.80 at the rate of the CBR), then in total the offered package was worth about $175,000. Thus, in total, the holders of its bonds received about 87% of the face value. It took longer for Ozon to negotiate with its bondholders, but it ended up with roughly the same result, reflecting a similar discount.

Just like in the case of Yandex N.V., although the shares (in fact, depositary receipts) of Ozon are temporarily not traded in the U.S., they continue to be traded in Russia. Since the company has been unprofitable for many years, the determining factor for the investment case is its financials.