Both state-backed and private Russian banks are increasing their capacity for trade financing, while other players retreat from the market. Rebecca Spong reports.
In mid-December last year, privately-owned Alfa Bank closed a 12-month US$250mn syndicated loan via four mandated lead arrangers; Citibank, HSBC, Wells Fargo and WestLB.
The initial loan commitments of US$160mn were increased by more than half and the transaction marked the first syndicated loan issued by the bank since the 2008-09 financial crisis.
Alfa Bank secured an interest rate of 175 basis points over Libor, which is one of the lowest interest rates achieved for this kind of deal in 2011.
Closed during severe instability in the global and particularly European markets, the success of this deal demonstrates the growing strength and appeal of the
Russian domestic banking market. It also suggests that the private banking sector is readying itself to boost its trade finance lending in 2012.
The diverse lending group of banks involved in the Alfa deal further shows that a number of new players are looking to get more involved in the Russian market.
A statement issued by Alfa Bank said: “We are pleased to mention that some new counterparties, which did not take part in syndicated transactions in previous years, joined the deal.”
But Alfa Bank was not the only active borrower at the end of last year.
Fellow private bank UralSib also closed a syndicated loan in late December, while in early November private bank Promsvyazbank closed its one-year US$350mn syndicated term facility via a lending group of 18 banks. The deal has a tenor of 364 days, carries a margin of 190 basis points and is one of the largest facilities secured by a privately-owned Russian bank.
Promsvyazbank raised its one-year US$132mn syndicated facility for trade finance purposes. Commerzbank, ING, Raiffeisen Bank and VTB Bank were jointed arrangers on the deal, while Raiffeisenlandesbank, BHF Bank, Citibank, RBS, Bank of Ireland and Adria Bank also participated in this transaction.
State banks dominate
Despite the growing market confidence in the strength of the private banks’ trade finance capabilities, the state-backed banks still reign supreme.
At the end of 2011, state-owned Sberbank announced that compared to 2010, its portfolio had increased by 50% and exceeded US$7bn, with more than 930 transactions closed.
The bank puts this growth down to the increase in trade-related bilateral loans for financing of Sberbank’s clients’ foreign trade activities. The bank reports that the total amount of raised bilateral loans increased by 86% compared to 2010, equating to US$3.9bn or a total of 46 individual transactions closed.
More than 700 letters of credit totalling an amount exceeding US$1.5bn were confirmed and financed by foreign banks.
Sberbank also increased its long-term financing related to export credit agency (ECA) cover. This portfolio increased 3.5 times compared to 2010 year end.
The bank has also stated it is keen to start providing a range of financing products with cover from the newly-created Russian insurance agency Exiar. This new export credit agency, the first of its kind in Russia, was officially launched in mid-November 2011. The provision of trade finance is a key component of Sberbank’s growth plans.
In an official release, Andrey Donskikh, deputy chairman of the board of Sberbank, comments: “By steady portfolio growth, Sberbank confirmed its strong leadership in the area of trade finance; an important part of the bank’s corporate business strategy.”
According to Sberbank, the largest trade finance lenders were Bank of America Merrill Lynch, Citibank, Commerzbank, Mizuho Corporate Bank and RBS.
Most of these banks have been active in Russia for some time now. However, there is much market speculation that in the final quarter of 2011, there was a distinct slowdown in lending from the traditional European lenders both on the traditional trade finance and structured commodity finance side. Struggling with exposure to European sovereign debt and rising cost of funds, many banks began to take a more cautious approach to lending in Russia.
“What I have seen is that a number of banks were quite careful in the fourth quarter of 2011. That doesn’t mean nothing was done, but activity was slower than in the first three quarters,” a source from a European bank active in the Russian structured commodity finance markets tells GTR.
This has created a chance for other players to get more involved in the market
As the European banker tells GTR: “What they see [the US and Japanese banks] is a very nice opportunity to establish their name in these markets.”
Looking at deals closed in the final quarter of 2011, there is a growing level of Japanese and US bank involvement. In early December, Mizuho Corporate Bank signed two bilateral term loan facilities with Sberbank; one being a seven-year US$100mn general purpose financing and the other a US$100mn three-year loan for on-lending to Japanese-related corporate clients of Sberbank.
Citibank Europe also lent Sberbank a US$300mn pre-export financing in early November for on-lending to Russian corporate Uralchem.
According to Sberbank, the loan was the largest of its kind secured by the bank by a sole lender for the purposes of pre-export financing.
Kevork Kahanian, head of trade for Citi Russia and CIS, tells GTR that Citi is benefiting from the reducing lending capacity in Europe.
“From Citi’s perspective, we find ourselves in very fortunate position, primarily due to the cost of US dollars, which is one of the key problems for European banks,” says Kevork Kahanian, head of trade for Citi Russia and CIS.
Despite the growing activity from the Japanese and American banks in the final months of 2011, as yet the European players still remain dominant.
Looking at Dealogic tables for 2011, ING is the leading provider of trade finance loans to Russia. As a mandated lead arranger of Russian deals, the Dutch bank provided US$2.3bn in financing.
The only American bank to feature within the top 10 banks was CIti, while two Japanese banks featured in the top 10; SMBC and BTMU.
Despite some slowdown in the fourth quarter, there does still seem to be appetite for the top-tier corporate names in Russia.
In December, oil company Rosneft returned to the market for the first time since 2009 raising a five-year US$2bn unsecured credit line via mandated lead arranger Barclays Capital and 14 other banks.
Early November last year saw the trading division of Russian metals firm Mechel close a US$180mn loan to refinance its short-term debt via lenders ING,
UniCredit and Barclays, and undisclosed additional lenders. The loan is secured via a pre-export structure involving Mechel Trading’s offtake contracts.
Russia’s Siberian Coal Energy Company (Suek) won a US$1.3bn five-year syndicated pre-export loan facility at the end of October last year.
Mandated lead arrangers and bookrunners on this deal include ING and UniCredit as coordinating MLAs, along with BTMU, Commerzbank, HSBC, Nordea, Raiffeisen Bank International, Société Générale, Rosbank, Rabobank International, Deutsche Bank and Barclays Capital joining as mandated lead arrangers. The facility carried a margin of 270 basis points.
As GTR goes to press, metals producer Norilsk Nickel closed a syndicated US$1.5bn pre-export finance facility.
Citi and Société Générale are acting as the mandated lead arrangers and bookrunners on the transaction. This transaction marks Norilsk’s first syndicated loan since its three-year US$1.5bn pre-export transaction closed in 2008.
The success of these recent transactions can be partly put down to the fact that most of the lending banks want to maintain good relationships with these leading Russian names, despite the rising funding costs many have to cope with.
As Citi’s Kahanian tells GTR: “We are still seeing a number of European banks doing relationship deals. If they walk away from the deal, it could probably destroy the relationship.
“You end up seeing lots of contradictory events where, for example, a bank gets a mandate at 100 bps and its internal cost of funding is 150 bps, but they still end up doing the deal.”
There are of course some deals that remain unappealing to bankers. GTR was told by two structured commodity finance bankers based in Europe that they turned down participation in the current Norilsk Nickel deal due to unattractive pricing.
Yet market sentiment suggests that the Russian corporate sector remains buoyant, cash-rich and with corporate credit risks that are often better to many lenders than large corporates in Europe or other markets. Although the cost of finance may have risen, Russian borrowers still have access to adequate trade and commodity financing for the time being.
“Generally the Russian market has been relatively untouched by most of the problems elsewhere. There has been an increase in pricing but nothing too dramatic. Whether a corporate pays a little bit more or less – say 20, 30, 40bps – it doesn’t really change the financing decisions,” observes Citi’s Kahanian. GTR