According to a report in The Financial Times, Severstal is on course to become the first major Russian company to default on its debt since the invasion of Ukraine, after Citigroup blocked an interest payment from the company that is majority owned by oligarch Alexei Mordashov.

The steelmaker has spent the past week attempting to pay a coupon on a $800m bond, but has now exceeded a five-day grace period that means holders of the debt could force the company into default. Severstal said on Wednesday that Citigroup, its correspondent bank, had 'frozen' the $12.6m interest payment 'due to regulatory investigations'. The bank asked the company to obtain a licence from the US Office of Foreign Assets Control before it would process the cash, two people familiar with the matter said.

Ofac, the agency that enforces US sanctions, can provide special authorisations to engage in transactions that would otherwise be prohibited. Speaking to The Financial Times, the company said it was 'now in the process of application to all the necessary regulators to obtain the licenses'. Citigroup declined to comment.

Investors had been anticipating a wave of corporate defaults since Russia’s invasion triggered western sanctions against companies, individuals and the government. However, Russian firms have surprised markets by continuing to make interest payment on their foreign-currency debt — although some payments have been delayed while banks seek assurances from US or European authorities before processing them.

Source: The Financial Times