7 October 2016

Borrower Briefing

Norilsk pulls off a double – unsecured debt and an ECA-covered bilateral The benchmark deal borrowers in the Russian commodities-linked market have been waiting on has closed – and it is rumoured to have priced at below 300bp over Libor, competitive even when measured against a secured pre-export loan. Norilsk Nickel has raised a $500 million five-year unsecured revolving credit – the first international unsecured dollar-denominated Russian borrowing since EU and US sanctions in 2014 made bankers too jittery to touch anything but secured pre-export deals. The deal is good news for investment grade Russian borrowers – a key signal that international bank angst over lending to unsanctioned Russian borrowers is dissipating. And another investment grade Russian borrower is already said to be considering an unsecured loan. Signed on 30 September, the loan ups Norilsk’s medium term liquidity facilities to around $2 billion whilst further diversifying its funding base. The mandated lead arrangers and bookrunners are Commerzbank, HSBC Bank, Mizuho, SMBC and UniCredit Bank (also facility agent). On the same day as close on its unsecured international revolver, Norilsk also signed another deal that signals a thawing in East-West banking relations – a €37.8 million 13-year Euler Hermescovered bilateral credit with Commerzbank. Proceeds will finance 85% of the contract value for the construction of an electric power substation in Norilsk area being built by Thyssen Schachtbau. Politics rather than sanctions have dictated that European ECAs steered clear of unsanctioned Russian borrowers. Although this latest deal may be the first European ECA-covered loan into Russia since 2014, it is unlikely to be the last. According to Sergey Malyshev, CFO at Norilsk: “We intend to use ECA financing on a more regular basis. It is a good opportunity to raise cheap and longer-dated financing as well as to diversify funding sources.” The reasons for the growing appetite for Russian debt, particularly commodities-linked debt, is, ironically, attributable to the impact of sanctions. For example, according to data from Trafigura Eurasia, the Russian oil sector alone is undervalued by $1 trillion, the value of Russian oil companies dropping more steeply than that of their foreign counterparts during the oil price slump due to sanctions. Arguably, the pricing of Russian loans reflects that undervaluation, with debt priced on perceived credit strength rather than the reality. But undervaluation aside, there are also few positive signs of economic growth in Russia – the country is rated BB- and still faces economic contraction, depressed business growth and consumer price inflation of 7.7% this year. And some bankers claim the new bank willingness to lend is as much driven by lack of opportunity for new business elsewhere, as it is by the promise of high-ish margins.

But whether you are bullish or bearish about the Russian market, the evidence for a return to pre-2014 Russian loan volume, pricing and unsecured structures is growing – more US sanctions or not.

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Talking shop – DFI comment In July, French development bank Societe de Financement Local (SFIL) finalised the first loan under its newly established export credit finance remit which was ratified by the European Commission in May 2015. The loan is a refinancing of a portion of the debt on a $1.453 billion 12-year Coface-guaranteed facility raised by Royal Caribbean Cruises on 22 June 2016 to fund construction by STX France of two edge-class 117,900 GRT passenger cruise vessels for Royal Caribbean’s subsidiary Celebrity Cruises. HSBC, Societe Generale, SMBC, BBVA, Citi and Santander provided the original loan, of which €550 million was immediately refinanced with SFIL. Trade Finance talks to Sami Gotrane, managing dir