International lenders including Citigroup, ING and JPMorgan are reviewing their relationship with telecoms group Veon, after the owner of its largest shareholder and one of Russia’s richest men, Mikhail Fridman, was hit with sanctions by the EU.
LetterOne, the investment vehicle set up by Fridman in 2013 and in which he owns a significant stake, holds a 48 per cent stake in Veon, a Dutch telecoms group that makes most of its revenue from Russia.
In March last year, Veon secured a $ 1.25bn revolving credit facility from 10 banks, co-ordinated by Citi and including Crédit Agricole, JPMorgan, Société Générale, Barclays and Raiffeisen. Last month, the company drew $ 430mn from the credit line to repay a bond that matured, leaving $ 820mn available.
The parent company and its subsidiaries also have other outstanding loans from several western banks, including facilities to Veon’s Ukrainian subsidiary, according to filings.
That facility – as well as other loans to both the parent company and subsidiaries – are being reviewed by Citi, ING and their fellow lenders to ascertain whether they comply with internal rules around individuals placed under sanctions, as well as those set out by the US Office of Foreign Assets Control, according to people with direct knowledge of the matter.
Citigroup, ING and JPMorgan declined to comment, as did Crédit Agricole, SocGen, Barclays and Raiffeisen Bank.
The situation with Veon is indicative of a looming problem for the financial sector as it scrambles to ascertain its exposure to oligarchs and businessmen placed under sanctions by western governments – and the potential damage to their reputations if they do not cut ties.
Last week, Fridman and Petr Aven stepped down as directors from LetterOne and had their stakes “frozen” following the EU imposition of sanctions against them in the wake of Russia’s invasion of Ukraine.
LetterOne is arguing that the two men own less than half of the company, which could insulate its business portfolio – including Veon; food and dietary supplements group Holland and Barrett; Turkish telecoms group Turkcell; and Ukrainian mobile provider Kyivstar – from the secondary effects of western sanctions.
LetterOne said in a statement that the company was “not affected by sanctions”, adding that Fridman and Aven no longer had any contact or benefit from the business. “We are confident that these are the right decisions to protect the 120,000 jobs L1 investments support,” it said.
On Monday, the co-founders of LetterOne promised to pay all of their dividends to ongoing relief efforts in Ukraine “for the foreseeable future”, as well as $ 150mn in cash.
Veon said in a statement that “while sanctions have impacted certain shareholders, the impact of those individual sanctions does not flow down to Veon in a manner that subjects it to sanctions”.
A number of European and US financial services companies have suspended operations in Russia because such links have become politically toxic as the war in Ukraine intensifies.
Payment networks Visa, Mastercard and American Express have halted all transactions in the country, while over the weekend accountants EY, PwC and KPMG cut loose their local units and severed ties with any Russian government clients, state-owned enterprises or sanctioned entities.
Veon’s share price has lost about 70 per cent of its value over the past month, reaching a low of 26 cents last week.
In a report on March 4, JPMorgan’s own credit analysts said that Veon’s “ability to maintain sufficient cash flow on an ex-Russia and Ukraine basis is not obvious” and a refinancing of its $ 5.5bn debt pile would be “challenging in the current backdrop” ”.
They also noted that Kyivstar in Ukraine is “Veon’s most cash-generative international operation” and “its future is uncertain”. The analysts cautioned investors against buying its debt.
On Friday, Fitch downgraded Veon’s credit rating to a junk grade of B + from the previous investment grade BBB-, citing its limited access to cash in Russia and Ukraine.
However, the stock made a small recovery after Veon announced that it had $ 2.1bn in cash and deposits, including $ 1.5bn in US dollars and euros, held “in bank accounts, money market funds and on-demand deposits at a diversified group of international banks from the European Union, the United States and Japan ”.
Additional reporting by Daniel Thomas and Robert Smith