Citadel is facing potential default on convertible bonds from Russia’s Yandex NV.
Yandex NV is an internet and technology company that provides an internet search engine in Russia and other international markets.
Tigran Khudaverdyan has stepped down from his roles as Executive Director and Deputy CEO at Yandex.
Citadel could default on convertible bonds worth billions.
Here’s how Russia is affecting the hedge fund.
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(Bloomberg) Tech company suspension could lead to Citadel default in Russian bonds
The Russian tech company’s U.S. shares have been suspended for more than five days, enabling bondholders to ask for repayment in full.
Citadel just happens to be one of those bondholders who wants their money back.
The firm said it does not have the money to redeem the $1.25 billion bonds, which are meant to be exchangeable for common stock.
Yandex is one of few Russian companies with convertible bonds issued from foreign financial institutions.
And because restrictions complicate the transfer of money out of Russia, access to capital markets to raise funds any time soon seems highly unlikely.
This significantly increases the odds of Citadel having to default on their Russian bonds.
If Citadel defaults on these bonds, the hedge fund would have accrued additional losses its first quarter of 2022.
Representatives from Citadel declined to comment on the matter, according to Bloomberg.
JP Morgan Chase & Co. turns down advisory role
Bondholders have the right to ask to be repaid in full if the company’s shares stop trading for over five days.
However, Yandex only has $615 million in cash with only 60% of that money located outside of Russia.
This means Yandex only has approximately $369 million in liquidity.
That’s a massive difference from the $1.25 billion they owe to Citadel and other institutions affected.
Because sanctions are preventing money from leaving Russia, it’s impossible Citadel will obtain cash from the country.
Bondholders are struggling to find advisors to navigate the process.
JPMorgan Chase & Co. turned down an advisory role on the situation after participating in initial discussions.
The bank simply does not want to get involved.
Will Citadel default on these bonds?
The chances are very likely.
Margin call tension rises
Credit Suisse has been margin calling clients exposed to Russia.
In the coal industry, Peabody received a $534 million margin call.
We’ve recently seen Citadel pull back $2 billion from Gabe Plotkin’s Melvin Capital as they too have been experiencing losses.
Even as Citadel faces default on Russian bonds, the hedge fund has sent signals of distress in the past few months.
The Russia-Ukraine conflict is creating losses even for short sellers during a time they would usually profit.
It seems it’s only a matter of time before hedge funds start receiving margin calls too.
But will big banks be able to bail everyone out?
What do you think?
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