Yandex bond woes are the first step towards a state takeover

LONDON, March 7 (Reuters Breakingviews) – Russia is turning in on itself. Sanctions hit stocks linked to Moscow and New York, shares of search engine Yandex (YNDX.O), , until two weeks ago, the darling of the Russian tech scene, were suspended. The commercial break can activate a bond redemption that it cannot afford. Even if it strikes a deal with creditors, Yandex’s future appears to be controlled by the Kremlin.

The Securities and Exchange Commission suspended trading in shares of Yandex and several other Russian groups on Nasdaq on Feb. 28 due to regulatory concerns over sanctions. A five-day suspension triggers a buyout 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 been granted a temporary reprieve when the Nasdaq changed its trading halt status to “additional information requested.”

The group, which was worth $22 billion at the end of 2021, is not itself sanctioned and is not considered close to President Vladimir Putin. Given the near impossibility of remaining politically neutral in Russia, he had to walk a tightrope to decide how much data he shares with the authorities. That means he is unlikely to feature high on the Western sanctions target list. Still, making a deal with creditors and somehow avoiding default would be of limited use.

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Nearly half of its revenue last year came from advertising. Local businesses will tighten their belts following the sanctions. And the multinationals are scrambling for the exit. Use of Yandex’s Uber-like ride-sharing service, which accounted for 37% of revenue last year, will also plummet as a deep recession wipes out Russians’ disposable income. Finally, foreign income from countries like Lithuania, which now fear a Russian invasion themselves, will likely disappear entirely. The 38% rise in revenue for this year forecast by Refinitiv analysts before Russia’s invasion of Ukraine looks hopelessly outdated. Longer term, a ban on Western microchip imports raises concerns about Yandex’s ability to operate as a whole.

Yandex’s list of potential saviors is also short. Chinese companies could see opportunities in its e-commerce arm as Western sanctions boost domestic demand for phones and other gadgets from the East. Overall, Putin may be his best bet. The Russian leader wants to build an autonomous internet that would help him keep an eye on his citizens while excluding dissenting voices. Yandex’s sprawling services could provide a handy tool, especially in conjunction with the burgeoning tech ecosystem of lender Sberbank (SBER.MM) and VK (VKCOq.L), a social media platform controlled by the giant national energy company 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 views expressed are her own.)

BACKGROUND NEWS

– Russian search engine Yandex, which also has a ride-sharing and e-commerce business, warned late March 3 that holders of its $1.25 billion convertible bond would be entitled to put those notes to the company at par plus accrued interest if the Nasdaq-listed stock has been suspended for more than five days. March 4 marked the fifth consecutive day that stocks were halted.

– On March 7, Nasdaq announced that it was changing Yandex’s status to “additional information requested” from the company, updating the status of a trading halt.

– Dutch tech investor Prosus announced on March 7 that it was exiting its stake in Moscow-headquartered online platform VK, which it said was valued at $700 million in the books of Prosus.

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Editing by Ed Cropley and Karen Kwok

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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