A view shows the pick-up point of online retailer Ozon in Moscow, Russia, on March 16, 2020. REUTERS/Evgenia Novozhenina

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May 27 (Reuters) Signaling growing fears of a default on some corporate debts, Russian e-commerce player Ozon (OZON.O) said it had increased its investment spending and seen its free cash flow turn negative as it sought to move away from supply chain disruptions.
Nasdaq-listed Ozon, whose shares were suspended on February 28, warned in early March of bond payment problems and has since begun discussions with an ad hoc group of holders of its unsecured convertible bonds of $750 million at 1.875%.
Late Thursday, in a quarterly earnings release, Ozon said a significant portion of bondholders were entitled to receive principal and interest on May 31 and that failure to pay by June 14 would put it in default. .
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Ozon, which has not been targeted by Western sanctions, said Russian capital controls and the ever-changing regulatory environment prevent it from diverting funds from its Russian subsidiaries, creating the risk that it does not have sufficient cash when needed.
“It is important to understand that a possible technical default on the bonds does not mean the insolvency of the company,” Ozon said on Friday, adding that he expected to sign an agreement with the bondholders on the restructuring by the end of the year.
Ozon is one of a handful of Russian companies in the unique position of having the funds but not being able to pay. This reflects the dilemma facing the Russian government, which is about to be pushed into a bond default by sanctions, not a lack of cash. Read more

CAPEX JUMP

While many Russian companies have been reluctant to release financial information, Ozon said its loss for the first three months widened to 19.1 billion rubles ($293.7 million), but its figure for business was up 90% year-on-year to 63.6 billion rubles and gross merchandise. value (GMV), a measure of online trading volumes, jumped 139% to 177.4 billion rubles.

Free cash flow fell to 46.9 billion rubles for several reasons, including “accelerating purchases of IT, warehousesand other equipment to ensure uninterrupted supply”.

In Russia’s highly fragmented e-commerce market, there is strong competition for market share, said Anna Kupriyanova, analyst at Gazprombank TMT.

“Companies with good funding, like those as diverse as Yandex (YNDX.O), are in a better position compared to niche players like Ozon,” she said. “This whole situation will intensify the consolidation of the market and I expect the four biggest players to achieve more than 50% market share within one to two years.”

($1 = 65.0330 rubles)

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