Tag: Russia

Citadel Faces Potential Default on Russian Tech Company

Citadel Default on Russian bonds
Market News: Citadel faces potential default on Russian bonds

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

Yandex 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

JP Morgan turns down advisory role
Citadel and bondholders seek advisory – JP Morgan declines

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.

Events include from receiving a $1.2 billion lifeline from Paradigm and Sequoia to restricting customers from cashing out.

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?

Leave a comment below.

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Read: Ukraine: These famous brands have pulled out from Russia


Breaking: The Moscow Exchange Bans Short Selling

Moscow bans short selling

(Bloomberg) Moscow bans short selling, indicating officials are preparing to reopen the market.

Russia is banning short selling in some of the country’s biggest companies.

The power to ban a strategy used by hedge funds to inflict damage on a company’s stock raises curiosity.

Is this Russia’s way of raising capital?

And should more countries like the U.S. also ban short selling?

Let’s break it down together.

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Moscow bans short selling in some of Russia’s biggest companies

Moscow exchange bans short selling
Moscow exchange bans short selling

Investors won’t be allowed to bet on declines in about 30 Russian companies, according to Bloomberg sources.

Most of which are petroleum and coal companies.

The decision went into effect on Tuesday.

Russia’s stock market has been closed since February28th, the longest shutdown in Russia’s modern history.

There has not been any confirmation as to when stocks will begin to trade in the Moscow Exchange.

The head of portfolio strategy at Toronto Dominion Bank in London says the Russians might want to remove residual risk on falling prices.

Other exchanges have used short-selling bans to limit volatility during a crisis.

Back in March 2020, at the peak of the Covid pandemic-fueled selloff, Italy, France and Belgium also banned shorting selling.

In other places such as mainland China, investors have limited ability to short stocks.

In the United States investors have what seems like an unlimited ability to short company stock, which in some cases results in bankruptcy.

Let’s use Hong Kong as another example.

Only stocks specified by the lit exchange in Hong Kong may be eligible for shorting.

Investors say its near certainty that stocks will tumble when Russia’s stock market opens.

Should the U.S. ban or limit short selling?

The U.S. on the other hand has a real issue with abusive short selling practices.

A collective of institutions such as banks and hedge funds collude to drive the share price of a company’s stock down for profit.

Financial institutions will even go as far as to bankrupting a company to avoid paying taxes on the bets.

The Justice Department is currently investigating banks and hedge funds relating to market manipulation and other injustices in the market.

If Moscow can ban short selling, and other countries can too, do you feel the U.S. should as well?

Due to the capitalistic nature, banning short selling in the U.S could prove to be difficult, which raises the question; should it be limited?

I’d love to hear your thoughts below.

Is this ban temporary?

Moscow exchange short selling
Moscow exchange bans short selling

It seems like Moscow’s short selling ban may only be a temporary strategy for the country to begin stabilizing again after its economic turmoil.

Russia was removed from the SWIFT system in February when it invaded Ukraine.

This escalated tension worldwide as Russia was no longer able to access money outside the country.

The biggest companies in the world also pulled out from Russia which further crippled its economy.

What the ban on short selling in Moscow shows us is that governments have the power to remove the same predatorial short selling that we see happening in recovering companies such as AMC and GameStop.

While short selling has its use in the market to balance volatility, limiting the use of short selling on a group of companies wouldn’t be such a bad idea.

I’d love to hear what you think.

Leave your thoughts in the comment section below.

Stick around for more market news

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