Biggest PXF for Russian fertiliser

The largest syndicated deal ever signed in the fertiliser industry in Russia was finalised in the last quarter of 2008. EuroChem, a leading Russian agrochemical company, secured a four-year US$1.5bn syndicated loan from numerous international banks in a deal hailed by the government as a sign of confidence in the struggling Russian economy.

This pre-export finance facility, which pays a margin of 180 basis points (bp) over Libor, was arranged by nine banks: ING Wholesale Banking, Bank of Tokyo-Mitsubishi UFJ, Barclays, Bayerische Hypo-und Vereinsbank, BNP Paribas, Orgresbank/Nordea, RBS, Société Générale and Sumitomo Mitsui Banking Corporation (SMBC). Commerzbank joined the lead group as senior lead arranger before the launch of general syndication. The finance agreement was signed in September 2008, and disbursed the following month.

ING has supported EuroChem in underwriting and structuring all of its syndicated loans. Commenting on the deal, Wiljum Thomas, vice-president, structured metals and energy finance at ING, says: “ING Wholesale Banking’s top ranking in the Central and Eastern European loan markets as well as our excellent track record in arranging and syndicating pre-export finance transactions added critical credibility to the deal in the bank market.”

Olivier de Muizon, managing director and head of structured soft commodity finance at Société Générale Corporate & Investment Banking, comments that “banks were attracted to the EuroChem transaction as it helped diversify their Russian portfolios, often consisting of metals and oil and gas assets, with the addition of fertiliser – a strategic sector for the Russian economy”.

The facility is structured as a traditional pre-export finance facility secured in the first instance against the assignment of individual export contracts for export grade nitrogen fertilisers, iron ore concentrate and methanol with an offshore collection account. The facility is guaranteed by EuroChem Trading, and incorporates unconditional first demand performance and financial surety from the producing entities underpinning the facility.

“The transaction represented EuroChem’s first venture into the syndicated loan market,” says Ian Williams, head of structured trade finance at SMBC.

“Although the company was considered relatively under-leveraged, structuring it as a pre-export facility in order to make it attractive to investors made perfect sense in a deteriorating market.”

“The tailor-made structure of the facility coupled with strong positions of EuroChem in our core product markets were amongst the key factors that made this facility a success even against the background of currently turbulent market conditions,” says Alexander Gavrilov, head of corporate finance at EuroChem.

“This is a borderline transaction which closed on the verge of the roaming global credit crunch,” says Ksenia Kaga, head of loan syndications for Ogresbank, commenting on the success of the deal, which was in fact oversubscribed in the general syndication. “It showed the ability of the lenders and the borrower to cooperate and have confidence in each other even during the hardest times. It also demonstrated how the talent and the professionalism of the officers responsible for origination and execution – both on the banks’ and on the company’s side – can significantly influence the outcome.”

EuroChem is the largest manufacturer of mineral fertilisers in Russia, and ranks among the top three European and top ten global producers in the sector. The company produces phosphate and nitrogen fertilisers, phosphorus-bearing products and mineral raw materials. These products are exported to the US, Europe, Asia and Latin America. “As a leading player worldwide, EuroChem has an ambitious growth plan in all types of fertilisers – nitrogen, phosphate and potash – and the execution of this financing paves the way for its further expansion,” says de Muizon. The finance facility will be used for refinancing of existing debt, acquisitions and capital expenditures, and as such will further develop the company’s diversification strategy.

CFO of EuroChem, Andrey Ilyin says: “This transaction demonstrated that borrowers, such as EuroChem with its strong balance sheet and cash flow, good corporate governance and a solid global market position in a defensive industry, could borrow on attractive terms even in the most challenging environment. We are thankful to the syndicate members for their ability and willingness to think long term, and are confident that our relationship will continue to be mutually beneficial over the coming years.”

Deal Information

Borrower: EuroChem
Amount: US$1.5bn
Mandated lead arrangers: ING Wholesale Banking; BTMU; Barclays; Bayerische Hypo-und Vereinsbank; BNP Paribas; Orgresbank/Nordea; RBS; Société Générale; SMBC
Law firm: Allen & Overy
Tenor: 4 years with 6-month grace period
Margin: 180bp
Date signed: September 2008