King coal


Russia’s Siberian Coal and Energy Company (Suek) secured a US$400mn four-year coal pre-export facility through a syndicate of international lenders last year that represents the largest ever syndicated transaction for a Russian coal producer.


Led by mandated lead arrangers Banque Société Générale Vostok (BSGV), SG Corporate & Investment Banking (SG CIB), ZAO Raiffeisenbank Austria (RBRU) and RZB, the syndication closed heavily oversubscribed with commitments aggregating US$513mn raised from the market.


The borrower elected to sign the facility for an amount increased to US$400mn on September 26, 2006 compared to the initial fully underwritten US$300mn objective.


The facility will be used by Suek to refinance existing debt on more competitive terms and is backed by the assignment of commercial contracts with a pool of reputable international offtakers acceptable to the facility agent (including Glencore International and EDF Trading). Existing one-year debts have been lent by Russian local banks Sberbank, Alpha Bank, VTB and OuralCIB.


The deal is also secured by i) an irrevocable first demand payment guarantee of Suek AG, the Swiss export trading arm of the group; ii) sureties of up to four open pit mines, including Tugnuisky and IK Sokolovskaya, the group’s main export-oriented open pits mines; iii) pledge over the transaction accounts.


SG CIB and RZB acted as bookrunners, while RZB acted as documentation and facility agent and BSGV and RBRU as passport banks.


In addition to the MLAs, the syndicate of lenders included lead arrangers Bayersiche Landesbank, BNP Paribas (Suisse), Bank of Tokyo-Mitsubishi UFJ, Calyon, Commerzbank, Deka Bank Luxembourg, Erste Bank London, Fortis Project Finance, HSH Nordbank London, Bayerische Hypo-und Vereinsbank, ING Bank, KBC Bank, Moscow Narodny, Sumitumo Mitsui Banking Corporation Europe and WestLB.


Suek is the major coal group in Russia. The company supplies nearly 30% of steam coal to the domestic market and around 20% of Russian exports. It has affiliates and subsidiaries in 14 major Russian regions (among them Irkutsk, Krasnoyarsk, Chita, Kemerovo, Khakassia, Primorksi and Khabarobsk).


In 2005 the total output of Suek enterprises was 84.4mn tons (mt), with commercial sales of 80.2mt, of which 18.7mt was exported. The company employs over 44,000 workers. Suek is the largest private shareholder of several Siberian and Far Eastern power generation companies.


“Russian exports are on a fast rising trend but limited by rail trucks and port bottlenecks, especially in winter,” claims SG. “Russian exports increased almost 8% from January to October 2006 against 2005 levels, at 63mt, which still annualises at 75mt. But it could be much more, despite the structurally unfavourable cost position of Russian supplies.


“Major issues facing the Russian coal industry continue to include industry rationalisation,  energy   policy,  increasing  domestic  demand,  foreign investment,   port  capacity limitations  and  high  transportation  costs associated with long rail hauls.


“A major factor in Russia’s future impact in Asia will be the capacity and cost  of  its rail and port infrastructure.


“Regarding Russian country risk, SG is positive following the Russia’s recent country rating upgrade to investment grade by S&P in September 2006 and the improvement in Russia’s currency transfer and convertibility risk profile,” adds the bank.


Deal information:


Borrower: OAO Suek
Amount: US$400mn
Mandated lead arrangers: BSGV; SG CIB; ZAO RBRU; RZB
Guarantor: Suek AG
Tenor: 4 years
Margin: 1-95% yrs 1-2
Law firms: Freshfields; Homburger; CMS Reich-Rohrwig Hainz (lenders); Salans (borrower)
Date signed: September 2006