Putin’s Banker Defaults on Eurobonds

The news that Mezhprombank, a mid-sized Russian financial institution chaired by a close friend of Vladimir Putin, Sergei Pugachyov, has defaulted on €200 million in eurobonds – Russia’s first default to foreign obligations in a decade – does not signal any kind of widespread banking crisis (the central bank still has most banks juiced on the crisis package), but it does point an interesting struggle among siloviki to control lucrative shipyards. Just like Pugachyov’s partner, Sergey Veremeenko, Pugachyov’s struggles show that no matter how high you get in Russia, there is still always political risk – especially if Igor Sechin takes an interest in your holdings.  We’ll see how this plays out, but it could end up with the state scooping up valuable assets at a knockdown price after they bleed the creditors for a while longer.

From the Financial Times:

Mr Pugachyov had been attempting to sell his vast St Petersburg shipyards, Severnaya Verf and Baltiisky Zavod, to the state shipping corporation, OSK, for about $3bn, in a last-ditch effort to raise funds. But the two sides failed to agree on price in time.

VTB lent Mezhprombank $2.5bn just over a year ago, taking land plotsMr Pugachyov owns outside Moscow as collateral.

Dmitry Dukin, ananalyst at Uralsib Capital, said the eurobond default would probablylead to the state securing a discount on the shipbuilding assets, a factthey would have been all too aware of during the negotiations.

Thestate shipbuilding corporation, OSK, chaired by Igor Sechin, thepowerful deputy prime minister, has become increasingly interested inthe shipyards as a potential hub for building French Mistral warships.