Major Russian firm on the brink despite not being sanctioned as Putin faces collapse
Russian ruble falls to all-time low following economic sanctions
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Russian miner Petropavlovsk has been left scrambling to pay its debts and sell its gold as the toll of sanctions on Russia’s economy continues to grow. Despite not being under sanctions itself, Petropavlovsk owes millions of dollars to Gazprombank which it has so far been blocked from making interest payments on due to sanctions on the bank. In response Gazprombank has demanded the immediate repayment of nearly $300 million (£232.86m) worth of debt however Patropavlovsk has confirmed it remains prohibited from paying this. The firm added in a statement on Friday that it has a further $304 million (£235.97m) maturing in November this year and in response has appointed advisers to explore its options, with consultancy AlixPartners now advising the board.
Current options on the table include selling the company’s entire interests in its operating subsidiaries, though it admitted it was “not currently clear what return, if any, may be secured for shareholders”.
Petropavlovsk has found itself in a particularly difficult situation as Gazprombank also serves as its main gold buyer leaving it largely unable to sell the gold it produces.
The company said it “continues to explore options for the sale of its gold” and has applied for a new export licence.
CEO Denis Alexandrov insisted that, despite the Ukraine conflict and related sanctions, the firm’s mines “operated without disruption”.
However he acknowledged “various challenges at the corporate level”, adding: “In this rapidly changing environment, we continue to monitor the situation to take all necessary steps to ensure the continuity of our business and compliance with sanctions, and to plan for contingencies that may adversely impact our operations.”
Production of gold has remained on target with total output up eight percent year on year for the first quarter.
News of Petropavlovsk’s plans helped its share price up slightly this morning however it still remains a fraction of its former value having fallen from £10 a share at the start of the invasion to £2.52.
While gold prices have soared during the Ukraine conflict, the Russian Central Bank has set its price for gold purchases below London fixing which Petropavlovsk has said could adversely affect its cashflow.
Petropavlovsk is far from alone in the experiencing operating difficulties as a result of the wider effects of sanctions.
So far a number of other Russian companies such as steel maker Severstal and state owned rail firm Russian Railways have missed payments on their debts due to banks acting a paying agents freezing the payments to comply with sanctions.
Russia’s businesses lobby has taken aim at the situation, calling on the government to build up Russia’s own capacity for processing payments.
In a letter to the finance ministry and Russian Central Bank, the Union of Industrialists and Entrepreneurs proposed the job be given to Moscow’s National Settlement Depository to prevent foreign investors calling a default.
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As well as default risks in Russia’s corporate sector, the government itself is also inching closer to its first sovereign default since the Bolshevik revolution over 100 years ago after an attempt to make a payment on its debt in rubles.
Under the bond’s terms payment must be made in dollars by the end of a 30 day grace period on 4 May.
Although it has large reserves of dollars most of these have been frozen leaving Russia facing what finance minister Anton Siluanov has described as an “artificial default.”
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