Borrower Briefing

20 July 2016

Borrower Briefing Pricing on Russian loans begins to tighten as international appetite returns

Loan volume for Russia

Loan volume into Russia and the CIS has surged (see chart) and signs are that for strong Russian credits the very high pricing, demanded by international banks since the EU/US financial sanctions regime began to bite in 2014, is beginning to fall. In May, Russian potash producer Uralkali refinanced a $1.2 billion five-year pre-export facility lead arranged by ING, Natixis, UniCredit, Sberbank Europe, Societe Generale and Rosbank. Not only did syndication pull appetite from 16 banks, but the borrower (rated Ba2/BB/BB-) managed to reduce the pricing on its previous loan by 5bp to 325bp over Libor – a small pricing victory, but a victory nonetheless.

ECA export and agency loans

Most Russian loans since 2014 have been preexport facilities with very rigid terms that have cost, depending on the credit, up to twice as much as pre-sanctions deals – despite the borrowers not being on the EU/US sanctions list. The sheer risk of a borrower ending up post-deal on the sanctions list was enough to make lenders put up pricing or pull back from the market. But recently, some international lenders are beginning to make a return and pricing on loans is beginning to drop – albeit only by around 20bp30bp, which is small given all-in costs are 300bpplus. Nevertheless, upcoming deals are expected to generate enough appetite to cut margins further. Eurochem (rated -/BB-/BB) is due to refinance a $1.3 billion five-year pre-export facility and bankers predict a tighter margin than its last deal – a $750 million pre-export credit closed in 2015. Elsewhere in the CIS, Tengizchevroil (TCO) has also closed a $3 billion five-year loan – the first part of bond and loan fundraisings for its $36.8 billion expansion of the Tengiz oilfield. Pricing has been described as “very competitive” and almost certainly would have been given the same 12 lead banks – Bank of China, Citigroup,

Trade loan pricing by tenor

Deutsche Bank, HSBC, Banca Imi, ING, JP Morgan, Societe Generale, SMBC, BTMU and UniCredit – have also picked up the mandate to arrange up to $5.375 billion of bonds for TCO over the next five years.

Tenors by deal

The TCO deal demonstrates how a resurgence in appetite for Russian bonds is feeding into the loans market for non-sanctioned borrowers. For example, both Phosagro – which closed its debut pre-export financing with a $250 million four-year deal lead arranged by UniCredit Societe Generale and Rosbank at the end of June – and EuroChem are considering issuing Eurobonds. It would be no surprise to see the same pre-export loan arranging banks on the bond deals.

Tenors by value If you have a story (a request for proposals, mandate or deal closure for example) or have any queries on the deals covered please contact [email protected] or [email protected]

Talking shop – borrower comment Borrower: Bibby Financial Services Sector: SME financial services Deal: $150 million credit facility Tenor: 3 years Lender: HSBC Steve Box, International CEO, Bibby Financial Services: “Our new funding facilities will enable us to grow throughout Europe but we're targeting growth in Germany, Ireland, Poland over the coming months. Germany is a fantastic growth opportunity for us and a market where awareness of solutions such as factoring, is growing. “Key sectors for us are manufacturing, business services, transport and wholesale, but we support businesses in more than 300 industries so we have a wealth of knowledge and experience of dealing with SMEs of all shapes and sizes. Right now, we are seeing a growing demand for businesses who are trading across borders and we would expect to see this trend continue throughout Europe.

“We also believe that against the backdrop of Brexit, asset based financiers are best placed to support SMEs in the UK and throughout Europe. Particularly, there is an opportunity for asset based funders to step-in at a time where SMEs are reluctant to take on debt and when some funders will look to retreat from the market. “We are now seeing more demand for our export finance services as UK SMEs look to ramp-up export quantities while exchange rates are favourable to exporters. Conversely, we would expect to see an increase in businesses buying from UK SMEs during this time so there are cross border opportunities available.”

Mandate mill Ukrainian grain and sunflower oil supplier/producer, Kernel is looking to refinance a $350 million preexport facility that is due to mature in September. The original loan has a margin of 625bp over Libor and was led by ING and UniCredit. Kernel is already in talks with banks to renegotiate the deal. Arianne Phosphate has appointed Endeavour Financial as project finance adviser on the C$1.2 billion Lac a Paul phosphate mining project in Quebec. Empresas Publicas de Medellin (EPM) has approached the Inter-American Investment Corp. (IIC) for a $550 million, 12-year (inclusive of four-year grace period), unsecured A/B loan facility to partially fund the borrower’s 2.4GW Ituango hydro power project in Colombia. A decision on the financing is due on November 22, 2016. Russian/Swiss fertiliser producer, Eurochem is due to refinance a $1.3 billion five-year pre-export facility that matures later this month. The original deal was signed in 2011 with BNP Paribas, Bank of America Merrill Lynch, Barclays, Citi, Credit Agricole, HSBC, ING, Mitsubishi UFJ Financial Group, Natixis, Nordea, RBS, Raiffeisen Bank International and Sumitomo Mitsui Financial Group as mandated lead arrangers. State-owned Rural Electrification Corp. (REC) is out to the bank market with a request for proposals for a $150 million five-year facility for on-lending to the Indian power sector. REC has asked banks to submit individual bids by the end of July.

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