December 15, 2017 / 5:58 PM / in 2 months

UPDATE 1-Owners of Russia's Promsvyazbank subordinated debt face write-off

(Adds central bank’s comments, bond data)

By Jack Stubbs and Yelena Orekhova

MOSCOW, Dec 15 (Reuters) - The Russian central bank said on Friday it may write off 100 billion roubles (1.7 billion) in subordinated debt issued by Promsvyazbank to reduce the amount the regulator needs to spend on bailing out the lender.

The central bank said on Friday it was placing Promsvyazbank (PSB), the country’s 10th largest private lender, under temporary administration - the third in a series of costly Russian financial bailouts this year.

“For all creditors except for the sub-debt holders the bank will honour its obligations,” central bank deputy governor Vasily Pozdyshev told a briefing. “Writing off of this debt would partially cover the hole” in Promsvyazbank’s balance sheet, he said.

The two previous bank bailouts this year, of private bank Otkritie and B&N Bank, involved writing off some subordinated debt issued by the lenders. Four analysts said they now expected the same for PSB.

“If you look at previous similar cases in Russia, all subordinated debt holders have been completely wiped out,” said Ekaterina Sidorova, a corporate debt analyst at state lender Sberbank. “In Russia, this has been a very binary situation.”

Subordinated debt is unsecured and stands last in the queue to be repaid in the event of a liquidation. PSB, on its website, says investors currently hold $1.13 billion of subordinated debt in four bond issues sold between 2012 and 2014.

A further $855 million is given on the website as the value of one senior unsecured issue and two perpetual bond issues, printed between 2013 and 2017.

PSB bought back some of its subordinated Eurobond maturing in 2019 in late September after the price of subordinated bonds issued by Otkritie hit all-time lows following that lender’s bailout.

Uralsib analysts said PSB subordinated bonds maturing in 2019 and 2021 were at risk.

“Subordinated Eurobonds could be written off. The fate of the bank’s subordinated bonds, most likely, will be the same as the subordinated bonds of Otkritie,” they said in a note.

Alexander Danilov, a senior director at Fitch ratings agency, said holders of PSB’s Tier 1 subordinated debt would incur losses if the hole in the bank’s balance sheet was more than 25 billion roubles. Tier 2 holders will take losses if the shortfall is more than 95 billion roubles, he said.

“The exact write-off amount will depend on the size of the hole,” Danilov told Reuters.

“If we are to believe the 130 billion roubles additional reserve requirement that was leaked yesterday is correct, subdebt will be almost, if not fully, wiped out.” ($1 = 58.7960 roubles) (Reporting by Jack Stubbs, Tatiana Voronova and Yelena Orekhova in Moscow; Additional reporting by Sujata Rao and Karin Strohecker in London; Editing by Katya Golubkova/Keith Weir/Susan Fenton)

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