(Reuters) - Flagging escalating fears it may default on some corporate debt, Russian e-commerce player Ozon said it has increased its capital expenditure and seen free cash flow turn negative as it seeks to head off supply chain interruptions.
Nasdaq-listed Ozon, trading in whose shares was suspended on Feb. 28, warned of bond payment issues in early March and has since entered into discussions with an ad hoc group of holders of its $750 million, 1.875% unsecured convertible bonds.
Late on Thursday, in a quarterly results disclosure, Ozon said a substantial portion of bondholders were entitled to receive principal and interest on May 31 and that failure to pay by June 14 would place it in default.
Ozon, which has not been targeted by Western sanctions, said Russian capital controls and the ever-changing regulatory backdrop were restricting it from diverting funds from its Russian subsidiaries, creating the risk that it will have insufficient liquidity at the required time.
"It is important to understand that a possible technical default on bonds does not mean insolvency of the company," Ozon said on Friday, adding that it planned to sign an agreement with bondholders on restructuring by year-end.
Ozon is one of a handful of Russian companies in the peculiar situation of having the funds, but being unable to pay. It mirrors the quandary facing the Russian government, which is on the cusp of being pushed into a bond default by sanctions, not lack of cash.
CAPEX JUMP
While many Russian companies have shied away from reporting financials, Ozon said its loss for the first three months had widened to 19.1 billion roubles ($293.7 million), but its revenue was up 90% year-on-year to 63.6 billion roubles and gross merchandise value (GMV) - a measure of online transactions volumes - jumped 139% to 177.4 billion roubles.
Free cash flow slid to negative 46.9 billion roubles, for several reasons including "accelerated purchases of IT, warehouse and other equipment to ensure uninterrupted supply."
Across Russia's highly fragmented e-commerce market, there is strong competition for market share, said Gazprombank TMT analyst Anna Kupriyanova.
"Companies with good funding, like those as diversified as Yandex (NASDAQ:YNDX) are in a better position versus niche players like Ozon," she said. "This whole situation will intensify consolidation of the market and I expect the largest four players to get over 50% market share in one to two years."
($1 = 65.0330 roubles)