HSBC finally processed deferred interest payments on debt owed by Holland & Barrett, the British high-street retailer with links to sanctioned Russian oligarchs.
The bank had refused to approve the payment due to concerns over the status of LetterOne, the London-based investment group that owns the retailer, in a stark example of how Western sanctions following the invasion of Ukraine have sowed uncertainty in the markets.
LetterOne is majority-owned by sanctioned Russian oligarchs, including Mikhail Fridman and Petr Aven, although UK and European authorities have given it assurances that it does not fall under sanctions itself.
However, HSBC sought further comfort from regulators before making interest payments on the €415million loan to Holland & Barrett creditors, meaning the debt was not covered in time. to meet the payment deadline.
LetterOne paid its interest last week, but the delay meant it breached the end of the ‘grace period’ this week when borrowers usually have time to pay.
The value of Holland & Barrett’s loans has fallen sharply since the Financial Times first reported the retailer’s interest payment problems, leading some distressed debt investors to start taking stakes in the hope they might try to take over the business.
Difficulties in paying debt show how complicated the sanctions regime is in determining which related entities might fall under the regime, and also how cautious financial services companies are when dealing with Russian-related entities .
Russian companies have faced similar problems, with steelmaker Severstal unable to pay a coupon to a bondholder last week after Citigroup blocked payment. Severstal is not subject to any restrictions, but its majority owner, oligarch Alexei Mordashov, has been sanctioned by the UK and the EU.
Barclays, another bank involved in the deal, had already approved Holland & Barrett’s payment, while a similar sterling-denominated loan was paid off last week without issue.
HSBC received the additional guarantees it needed from authorities in France and the UK on Thursday morning, two people familiar with the matter said, meaning it could finally make the payment.
LetterOne said: “Holland & Barrett and LetterOne have been advised that HSBC, after receiving payment from [euros] interest from Holland & Barrett on March 29, made payment to all lenders on March 31. Holland & Barrett is in full compliance with all of its obligations to its lenders.
He added that LetterOne and Holland & Barrett were not subject to sanctions and had received confirmation of this from the UK and Luxembourg authorities.
One of Holland & Barrett’s lenders confirmed to the Financial Times that it received the coupon payment on Thursday.
HSBC declined to comment.