Yandex bond woes are first step to state takeover

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LONDON, March 7 (Reuters Breakingviews) - Russia is turning in on itself. Sanctions have hammered Moscow-linked stocks and in New York shares in search engine Yandex (YNDX.O), , until two weeks ago the darling of the Russian technology scene, have been suspended. The trading hiatus may activate a bond repayment it can’t afford. Even if it cuts a deal with creditors, Yandex’s future looks Kremlin-controlled.

The Securities and Exchange Commission suspended trading in shares of Yandex and several other Russian groups on the Nasdaq on Feb. 28 read more due to regulatory concerns over sanctions. Suspension for five days triggers a redemption clause on a $1.25 billion convertible bond that Yandex doesn’t have the resources to repay read more . On Monday it appeared to have secured a temporary reprieve when Nasdaq changed its trading halt status to “additional information requested”.

The group, which was worth $22 billion at the end of 2021, isn’t itself sanctioned and isn’t considered close to President Vladimir Putin. Given the near impossibility of remaining politically neutral in Russia, it has had to walk a tightrope in deciding how much data it shares with the authorities. That means it’s unlikely to feature prominently on the West’s sanctions hit list. Still, cutting a deal with creditors and somehow avoiding default would be of limited use.

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Almost half of its revenue last year came from advertising. Local businesses will tighten their belts in the wake of sanctions. And multinationals are stampeding for the exit. Use of Yandex’s Uber-like ride-hailing service, which represented 37% of revenue last year, will also slump as a steep recession wipes out Russians’ disposable income. Finally, foreign income from countries like Lithuania, now itself fearful of a Russian invasion, will likely disappear entirely. The 38% revenue bump for this year forecast by analysts on Refinitiv before the Russian invasion of Ukraine looks hopelessly outdated. Longer-term, a ban on Western microchip imports raises worries about Yandex’s ability to operate altogether.

Yandex’s list of potential saviours is also short. Chinese companies could see opportunity in its e-commerce arm as Western sanctions boost domestic demand for phones and other gadgets from the east. Overall, Putin may be its best bet. The Russian leader wants to build a self-contained internet that would help him keep tabs on his citizens while shutting out dissenting voices. Yandex’s sprawling services could provide a handy tool, especially in conjunction with lender Sberbank’s (SBER.MM) burgeoning tech ecosystem and VK (VKCOq.L), a social-media platform controlled by state energy giant Gazprom . Western funds still holding Yandex shares will want to get out as soon as they can.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Russian search engine Yandex, which also has a ride-hailing and e-commerce business, warned late on March 3 that holders of its $1.25 billion convertible bond would have the right to put these notes to the company at par plus accrued interest if the Nasdaq-listed shares were suspended for more than five days. March 4 marked the fifth day in a row the shares were halted.

- On March 7, Nasdaq said it was changing Yandex’s status to “additional information requested” from the company, updating the trading halt status.

- Dutch technology investor Prosus said on March 7 it was writing off its stake in Moscow-headquartered online platform VK, which it said was valued on Prosus's books at $700 million.

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Editing by Ed Cropley and Karen Kwok

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