VTB’s Bank of Moscow Takeover Raises Debt Risk, UniCredit Says
VTB Group’s takeover of Bank of Moscow puts Russia’s second-biggest lender at risk of a default on two bonds, UniCredit SpA said in a report today.
Bank of Moscow would become “a principal subsidiary” of VTB after consolidation of 75 percent of the city lender, wrote Rustam Botashev, deputy head of research at UniCredit in Moscow. Financial assistance to Bank of Moscow and a capital injection from VTB may be defined as financial rehabilitation under the terms of the loan participation notes, UniCredit said.
UniCredit said two notes, one maturing in October this year and another in June 2035, with $450 million and $693 million outstanding, respectively, may be in default as soon as the rehabilitation of Bank of Moscow starts, potentially leading to “a cross default on some other VTB debt.” A cross default is a stipulation in a loan agreement that puts the borrower in default if it defaults on another obligation.
A VTB spokeswoman didn’t pick up her mobile phone and there was no answer from VTB’s press office when Bloomberg News called. VTB disagrees that the situation with Bank of Moscow could be defined as “a financial rehabilitation” and therefore could become a default trigger, Botashev wrote.
VTB bought the city government’s 46.5 percent-stake in the bank after President Dmitry Medvedev fired Moscow Mayor Yury Luzhkov in September amid allegations he showed favoritism in awarding contracts to his developer wife.
The Russian company is ready to provide financing to deal with bad debt inherited from Bank of Moscow, Andrei Kostin, VTB’s chief executive officer, said on June 28. VTB is boosting Bank of Moscow’s charter capital by 100 billion rubles ($3.6 billion), Bank Rossii said.
The bank will get a total of 395 billion rubles including a 10-year loan of 295 billion rubles from the Deposit Insurance Agency at an interest rate of 0.51 percent, the central bank said in a statement on its website on July 1.
To contact the reporter on this story: Jason Corcoran at Jcorcoran13@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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