Holland & Barrett payment held up by HSBC over sanction concerns
Russian-backed owners of UK healthcare group paid interest on €415mn loan last week but creditors still waiting
Holland & Barrett has been left in limbo over a crucial debt payment held up by HSBC given the bank’s concerns about links between the UK healthcare retailer and sanctioned Russian oligarchs.
The problem of covering even a straightforward interest payment shows the complexity of doing business with groups linked to sanctioned individuals across borders, as banks struggle to work out which transactions regulators will allow them to make.
There are different sets of sanctions in the EU and UK, and these can be interpreted differently in each EU country, while financial institutions are seeking legal advice that can often differ.
The interest on the €415mn loan was paid last week by LetterOne, the Russian-backed but London-based investment group that owns Holland & Barrett. The British retailer employs about 5,000 people across hundreds of stores in the UK.
But payment had still not reached creditors at the end of a grace period on Wednesday, according to people close to the situation, sparking uncertainty about what happens next for the money owed to its debt holders.
The interest has been held up in the EU banking system after HSBC, one of the banks involved in the payment, sought additional reassurance over LetterOne’s status from EU regulatory authorities, according to people familiar with the matter. The bank declined to comment.
LetterOne’s Russian owners such as Mikhail Fridman have been hit with asset freezes and travel bans as part of sanctions imposed by the UK and EU on Russian oligarchs.
However, LetterOne, which is based in the UK and domiciled in Luxembourg, said that it has received confirmation from authorities in both jurisdictions that it does not fall under the sanctions. It has frozen the shares held by its sanctioned owners, and ejected them from its offices.
The retailer’s loans have plummeted in value since the issue around the interest payment became public, with traders quoting the €415mn loan at around 66 cents on the euro, having been at 83 cents previously.
The Holland & Barrett payment had already passed through Luxembourg and Germany without issue, according to a person close to the situation, and had been accepted by Barclays, which was also involved in the transaction.
An interest payment on another £450mn loan at Holland & Barrett in the UK has also flowed through to lenders successfully.
Russian steelmaker Severstal last week faced similar issues paying a coupon to bondholders, after Citigroup blocked the payment, even though the company is not under sanctions.
The delayed payment should not automatically trigger a Holland & Barrett default, according to two people briefed on the arrangements, because the retailer’s owners have already released the funds even though they have not found their way to the creditors.
Distressed debt investors have begun buying the loans in the secondary market, however, and could still try to seize on the opportunity to gain control of the company.
Some of the banks that lent to LetterOne — which include HSBC, Barclays, Citigroup, UBS and Société Générale — have been reviewing their relationships with the company given concern among the financial industry of doing business with entities linked to sanctioned Russian oligarchs.
LetterOne has confirmed to the Financial Times that “one of the paying agents is having difficulties processing euro payments”. It added that LetterOne was not sanctioned “and has had confirmation of this from authorities in the UK and Luxembourg”.