(Reuters) – Russian ecommerce giant Ozon has stated that it is facing increasing fears of defaulting on corporate debt and increased capital expenditure. It also reported negative free cash flow as part of its efforts to prevent supply chain disruptions.

The Nasdaq-listed Ozon was stopped from trading on February 28th. It warned about bond payments issues and entered into talks with an ad-hoc group of owners of the 1.875% convertible bonds, valued at $750 million.

Ozon disclosed late on Thursday that large numbers of bondholders are entitled to interest and principal on May 31. Failure to make payment by June 14 will result in default.

Ozon said that Russia’s capital controls and ever-changing regulations had prevented it from diverting money from Russian subsidiaries. This has made it less likely to be targeted by Western sanctions.

Ozon explained that insolvency does not necessarily result from a technical default on bonds. He also stated on Friday that the bondholders would be able to reach an agreement on restructuring before year’s end.

Ozon is just one of the few Russian companies that find themselves in this peculiar position of not being able to pay but having the money. The situation mirrors that of the Russian government which faces the peril of defaulting on bonds because of sanctions.

CAPEX JUMP

Although many Russian businesses have avoided reporting financials in the past, Ozon stated that it had lost 19.1 billion Russian rubles ($293.7m) during its first three months. However, Ozon’s revenue increased 90% year-on–year to 63.6 million roubles. Its gross merchandise value (GMV), a measure of online transaction volume, rose 139% to 177.3 billion roubles.

For several reasons, the free cash flow dropped to negative 46.9 trillion rubles. These include “accelerated IT and warehouse purchases to assure uninterrupted supply.”

According to Gazprombank TMT Analyst Anna Kupriyanova, Russia has a fragmented market for e-commerce. There is fierce competition for market share.

“Companies with excellent funding such as companies as diversified as Yandex Ozon and niche players (NASDAQ) are more advantageous than they are,” she stated. This will increase market consolidation and I anticipate the four largest players to gain over half the market share within one or two years.

($1 = 65.0330 roubles)