Russian steel giant Severstal has lost up to a third of its sales and could become the first major Russian company to default after invading Ukraine. This is stated in the editorial article of the American edition of The Wall Street Journal.
“The company's steel products are stuck in warehouses across Europe, one of its overseas subsidiaries is left without money to pay employees, and sales staff struggle to find new customers. A long-term relationship collapsed overnight, and Western equipment - from computers to excavators - was suddenly banned, ”writes the WSJ.
On Wednesday, Europe's third-largest steelmaker failed to pay its debt despite having funds, after Citigroup Inc. froze the payment of interest to investors on the company's bonds. Citigroup declined to comment on the move. Severstal did not default, nor did bondholders or credit rating companies.
"Severstal used to be a respected company, deeply integrated into the global trading system, but now things are rapidly changing for the worse for them," says David Kachot, director of steel and raw materials research at Wood Mackenzie.
The EU imposed sanctions on Alexei Mordashov, who owns a 77% stake in Severstal, on February 28. Brussels said that Mr. Mordashov's media company actively supported Russia's destabilization of the situation in Ukraine and that he profited from doing business in Crimea.
Severstal executives first learned about the sanctions from the media and informed Mr. Mordashov, who, according to a person familiar with the situation, was surprised by the EU's actions. After an overnight conversation with leaders, Mr. Mordashov issued a statement that he was not close to politics and described the fighting in Ukraine as a tragedy.
“I have absolutely nothing to do with the current geopolitical tensions, and I don’t understand why the EU has imposed sanctions against me,” said Mr. Mordashov.
Even before the invasion, European customers began avoiding Severstal as Russia built up its military forces on the border with Ukraine, according to a source familiar with the situation. When Mr. Mordashov came under sanctions, the number of cancellations began to increase.
According to a WSJ source, one railway shipment of iron ore bound for Finland was stopped and turned around, and steel destined for customers was stuck in Severstal warehouses in various countries, including Poland, the Netherlands and Germany.
Shortly thereafter, industry consultants, technology providers and Western banks told Severstal that they could no longer work with the company. Four foreign directors of the company have left its board, including one who has worked at Severstal both as an executive director and a member of the board of directors for more than a decade.
Severstal warned at the time that it would soon be unable to send money to a subsidiary in Latvia that specializes in steel customization. If this company runs out of money, its employees won't get paid.
A Russian steelmaker is facing a $12.6 million interest payment problem to bondholders. For several weeks, its depository bank, Citigroup, did not say if it could pay back the money it held in a U.S. account on behalf of Severstal, a source familiar with the matter said.
Citigroup later told Severstal that the company needed permission from the US Office of Foreign Assets Control to make the payment. Severstal stated that it intends to fulfill its obligations and will apply for any licenses necessary to make the payment.
“This is an extraordinary situation for us, which arose through no fault of ours,” says Alexander Shevelev, CEO of Severstal, in a comment. He emphasized that Severstal maintains a stable financial position and confirms its readiness and desire to fulfill obligations on debts. “We look forward to cooperation from our paying agent, who, like us, must act in the interests of bondholders, including both Russian and foreign residents,” he added.
Even salaries paid to Severstal employees in Russia go through international financial institutions. For example, Austrian Raiffeisen Bank International AG, which said it was considering exiting the country, is handling some of the company's payroll, the source said.
Mr. Mordashov, according to the WSJ, "dramatically fell out of favor" with the United States. Just a year earlier, it had aired on Bloomberg TV as a Russian response to the founder of Amazon.com Inc. Jeff Bezos. "Severstal"
