Raiffeisen Bank International abandoned its planned sale of risky debt on Wednesday after a “negative market reaction” following a report claiming that the US put pressure on the Austrian bank over a deal it had made with Russian oligarch Oleg Dripaska.
Investors had demanded more than €1.6bn from the Vienna bank, which was working on a €650mn sale of “additional Tier 1” bonds. This is a type of debt that’s designed to absorb losses in times of financial distress.
Raiffeisen pulled out of the bond offering just hours before it was due to be priced. They cited “adverse reactions to recent headlines”.
The company referred to a Reuters report that stated Washington was pressing the bank to abandon a controversial €1.5bn swap of assets with Deripaska. The bank would be able to repatriate its earnings from Russia.
The US is concerned about the Austrian bank dealings with a Russian businessman who has been sanctioned for his involvement in the Russian invasion of Ukraine.
RBI offered investors an 8.5% yield on this deal. It was set to mature in December 2020 and was intended to pay off an existing AT1 Bond.
Raiffeisen AT1 bonds’ robust demand underscored the strength and stability of the AT1 bond market, almost a full year after the collapse of Credit Suisse had shaken investors’ confidence. Regulators allowed Credit Suisse bonds worth $17bn to be erased, while shareholders received only a small payout. In general, AT1 bonds rank higher than equity on a balance sheet.
The price of RBI’s existing AT1 bond fell slightly on Wednesday while the shares in the Bank closed 8.7 percent lower.
Since the beginning of the Ukraine war in 2022, Raiffeisen has made huge profits through its operations in Russia. Last year nearly half of the €2.1bn profit the bank made came from its Russian unit, up from a third just before the war. The Kremlin has imposed capital controls, which means that RBI is unable to repatriate any of its earnings.
In the agreement with Deripaska Raiffeisen’s Russian subsidiary will exchange cash for Deripaska’s 28 per cent stake in Austria’s Strabag, Europe’s largest construction company.
Reuters reported the US authorities were about to break up the complex deal. The subsidiary will need to get special approval from Kremlin for the transaction.
RBI, which called the Reuters report “rumours”, claimed to have “carefully verified that the Strabag transaction complied with all applicable sanctions”.
The company said that it would not proceed with any deals that violated sanctions, or that put RBI in danger of violating sanctions.
Raiffeisen has been under increasing pressure to reduce its Russian operations, but has refused, claiming that it would be detrimental to shareholders.
In March of last year, it was reported that RBI began working on an possible €400mn deal with Sberbank’s frozen European assets until the state-owned Sberbank sold the assets.