Complex structure frames steel deal

In March 2008, Bayerische Hypo- und Vereinsbank (HVB) closed a dual tranche export credit agency (ECA)-backed facility for Russian copper producer, Urals Mining and Metallurgical Company (UMMC).

The financing is supporting a rolled metal plant in the Tyumen region in the Russian Urals, and it is UMMC’s second steel project. The total project costs amount to €417mn.

The facility was raised to finance equipment imports from Italian firms Danieli, SIC and Siad. It is split into a 10-year €182.8mn tranche backed by the Italian ECA, Sace, and a three-year €30.1mn commercial tranche.

This deal stands out in the market for its intricate bespoke structure, as Martin Duschl, director, structured export finance, CIS/CEE, at HVB, explains: “The extraordinary challenge for the deal team was to find tailor-made solutions to implement the financing’s unique structure by meeting all requirements given by sets of different regulations and legal frames.

“Strong commitment and flexibility of all partners involved resulted in a successful alignment of interest, and once again UniCredit Group managed to lead one of their Russian corporate customers for the first time to the international export finance market.”

The UniCredit Group was approached simultaneously for a financing solution by the borrower UMMC through UniCredit’s Moscow arm (UCB), and through the Italian exporter Danieli via HVB’s Milan branch.

The final export finance facility was structured with HVB acting as mandated lead arranger and sole lender under the Sace-covered €182.8mn facility.

The Sace portion financed 85% of the delivery of goods and services under export contracts, plus 100% of the insurance premium under insurance cover of Sace, which in turn covered 95% of commercial and political risk of principal plus interest.

Unicredit Moscow (UCB) acted as mandated lead arranger and sole lender for the smaller €30.1mn local Russian down-payment facility. This portion finances 15% downpayments of the delivery of goods and services under export contracts.

Together the two tranches provided financing for 100% of the imports from the Italian suppliers Danieli, SIC and Siad.

HVB Milan worked as relationship manager for the Italian exporters, Sace agent and Italian paying agent, and HVB London as debt service reserve account bank.

“All these members of UniCredit Group had an important part in the sophisticated security structure of the deal,” notes HVB’s Martin Duschl.

A complex security package was needed to ensure the deal was both bankable and eligible for ECA cover. The structure included the assignment of export receivables under selected export contracts for steel and copper deliveries, closed between the borrower and Swiss companies.

The facility also allowed for direct debit rights on the borrower’s collections accounts for the assigned export receivables held with UCB. In addition, there is a debt service reserve on the respective account held with HVB London, a pledge on the equipment financed under the Sace-covered facility and a project information deed entered into by HVB, UCB and all the other banks providing funding to the project.

Deal Information

Borrower: UMMC-Steel Corporation
Amount: €182.8mn and €30.1mn
Lead arranger: Bayerische Hypo- und Vereinsbank (HVB)
Lenders: HVB and ZAO UniCredit Bank, Moscow (UCB)
ECA: Sace
Law firm: Norton Rose
Tenor: 10 years (ECA portion); 3 years (commercial tranche)
Date signed: March 2008