International lenders including Citigroup, ING and JPMorgan are reviewing their relationship with telecommunications group Veon, after the owner of its biggest shareholder and one of Russia’s richest men, Mikhail Fridman, was hit with sanctions by the EU.
LetterOne, the investment vehicle Fridman set up in 2013 and in which he has a significant stake, owns a 48% stake in Veon, a Dutch telecommunications group that derives most of its revenue from Russia.
In March last year, Veon secured a $1.25 billion revolving credit facility from 10 banks, coordinated by Citi and including Credit Agricole, JPMorgan, Societe Generale, Barclays and Raiffeisen. Last month, the company drew $430 million from the line of credit to repay a maturing bond, leaving $820 million available.
The parent company and its subsidiaries also have other outstanding loans with several Western banks, including facilities at Veon’s Ukrainian subsidiary, according to filings.
This facility – along with other loans to the parent company and subsidiaries – are being reviewed by Citi, ING and their fellow lenders to check whether they comply with internal rules regarding sanctioned persons, as well as those established by the United States. Office of Foreign Assets Control, according to people with direct knowledge of the matter.
Citigroup, ING and JPMorgan declined to comment, as did Credit Agricole, SocGen, Barclays and Raiffeisen Bank.
The situation with Veon is indicative of a looming problem for the financial sector as it struggles to determine its exposure to oligarchs and businessmen subject to sanctions by Western governments – and the potential damage to their reputation if they don’t cut ties.
Fridman and Petr Aven last week resigned as directors of LetterOne and had their holdings ‘frozen’ following the imposition of EU sanctions against them following the Russian invasion from Ukraine.
LetterOne argues that the two men own less than half of the company, which could isolate its business portfolio, including Veon; the Holland and Barrett foods and supplements group; the Turkish telecom group Turkcell; and Ukrainian mobile provider Kyivstar — side effects of Western sanctions.
LetterOne said in a statement that the company was “unaffected by the sanctions,” adding that Fridman and Aven no longer had any contact or benefit from the company. “We are confident that these are the right decisions to protect the 120,000 L1 investment support jobs,” he said.
On Monday, the LetterOne co-founders pledged to pay all of their dividends to ongoing relief efforts in Ukraine “for the foreseeable future,” along with $150 million in cash.
Veon said in a statement that “although the sanctions have had an impact on some shareholders, the impact of these individual sanctions does not flow through to Veon in a way that subjects it to sanctions.”
A number of European and American financial services firms have suspended operations in Russia as those ties have become politically toxic as the war in Ukraine escalates.
Payment networks Visa, Mastercard and American Express halted all transactions in the country, while over the weekend accountants EY, PwC and KPMG broke their local units and severed ties with all customers in the country. Russian government, state-owned companies or sanctioned entities.
Veon’s stock price has lost about 70% of its value over the past month, hitting a low of 26 cents last week.
In a March 4 report, JPMorgan’s own credit analysts said “Veon’s ability to maintain sufficient cash flow on an ex-Russian and Ukrainian basis is not evident” and that a refinancing of its debt of 5.5 billion dollars would be “difficult in the current context”. ”.
They also noted that Kyivstar in Ukraine is “Veon’s most cash-generating international operation” and that “its future is uncertain.” Analysts have warned investors against buying its debt.
On Friday, Fitch downgraded Veon’s credit rating to a junk B+ rating from the previous BBB- investment rating, citing its limited access to cash in Russia and Ukraine.
However, the stock rallied slightly after Veon announced it had $2.1 billion in cash and deposits, including $1.5 billion in US dollars and euros, held “in bank accounts , money market funds and demand deposits with a diversified group of international companies”. banks in the European Union, the United States and Japan”.
Additional reporting by Daniel Thomas and Robert Smith