Banks dive back into Russian pool

Thirteen bookrunners, jointly co-ordinated by ING and BNP Paribas, closed a US$1.6bn loan in favour of Lebedinskiy Gok and OEMK, guaranteed by Russian iron and steel company Metalloinvest, in a deal that boasts one of the largest and most diversified pool of banks. Not only was the deal a sizeable transaction, but it was also a successful repetitive exercise, as it went to the market less than six months after the closing of another transaction – under the name of Gazmetall – in January 2008.

“If that was not enough,” says Philippe Landry, managing director and head of the Russia and CIS department within the natural resources and energy financing group at Société Générale Corporate & Investment Banking, “the repeat transaction was also met enthusiastically in the market with a large pool of 20 banks willing to put up US$1.6bn, allowing Metalloinvest to increase their target amount of US$1.3bn, despite difficult market conditions”.

“The successful syndication of this huge pre-export finance deal under difficult economic conditions shows the market’s continued appetite for high-quality, well-structured transactions,” says Mehmet Saydam, director of structured commodity trade finance at Deutsche Bank Amsterdam. “The deal was specifically designed to allow Metalloinvest to access investors that had previously had difficulties in participating in earlier syndications due to its structure.”

Lebedinskiy Gok is Russia’s largest and one of the world’s top 10 iron ore mines. OEMK is one of the most modern steel plants in Russia. Metalloinvest, former Gazmetall, is one of the largest and fastest growing integrated mining and metallurgical groups in the CIS region, consolidating, in addition to Lebedinskiy Gok and OEMK, MGOK – Russia’s second largest iron ore producer, and Ural Steel – the country’s seventh largest steel producer.

Arranging banks for the five-year syndicated loan include ABN Amro, BNP Paribas, Bank of Tokyo-Mitsubishi UFJ, Calyon, Commerzbank, Deutsche Bank, ING, Natixis, Orgresbank (part of Nordea), Rabobank, Société Générale, SMBC and Unicredit. The margin is 200 basis points (bp) over Libor. Banks were invited to commit US$75mn for an upfront fee of 80bp, US$50mn for 65bp, or US$25mn for 50bp. Linklaters supplied legal advice to the 13 mandated lead arrangers.

“The choice of the syndication strategy was crucial to ensure success of the deal. We went through a process of intricate negotiations, held two stages of syndication and put a lot of emphasis on the time to market,” says Julia Podjapolskaja, vice-president of syndications at ING.

“This deal was very illustrative for the then-prevailing markets conditions, and proved once again that good co-operation between the leading banks in the industry and a strong involvement of the client are the necessary keys to success. As evidenced by this award the market perception of the deal was also very good and this was clearly one of our principle goals.”

Ian Williams, head of structured trade finance at SMBC, also comments: “The combination of the typical pre-export structure of this facility and being one of the banks eligible to quote for fixed interest rate swaps made this transaction particularly attractive.”

The pre-export financing, which is secured on export deliveries, is being used to refinance existing debt and for general corporate purposes.

“We are really proud of this award, which is the result of great team work internally, with our co-ordination partner BNP Paribas and the other banks,” says Podjapolskaja. She adds that the process was fairly demanding, due to the number of financial institutions involved, its documentary specificity, the creative structuring solutions and the unprecedented challenging market environment in which the syndication took place.

Deal Information

Borrowers: Lebedinskiy Gok and Oskol Electric Steel Works (OEMK)
Amount: US$1.6bn
Mandated lead arrangers: ABN Amro; Bank of Tokyo-Mitsubishi UFJ; BNP Paribas; Calyon; Commerzbank; Deutsche Bank; HVB/UniCredit; ING; Natixis; Nordea/Orgresbank; Rabobank; Société Générale CIB; SMBC
Law firm: Linklaters
Tenor: 5 years, including a one-year grace period
Margin: 2–2.3% depending on debt/EBITDA ratio level
Date signed: July 2008