Borrower Briefing

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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.

To see more coverage of Russian trade finance activity, or to access our market-leading database of verified trade finance transactions, click here to take a trial of Trade Finance Analytics.

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 director and head of treasury and capital markets at SFIL, about what it brought to the STX deal and its plans to grow its new export finance business. TF: SFIL financed €550 million for the STX cruise ships deal, via a Caffil covered bond refinancing, lowering financing costs considerably – what was the ballpark cost saving on debt for the borrower? Gotrane: The purpose of the transaction was to refinance the loans of four banks through a true sale: three of the banks are foreign institutions and only one is French. At the end of the process, SFIL is a direct lender to Royal Caribbean Cruise Line, buyer of the vessels which are being built in France by STX.

The SFIL loan was immediately refinanced by a mirror loan from our subsidiary Caffil which enjoys the unconditional, irrevocable, first demand guarantee of the French state. The cost saving brought to the deal by SFIL is estimated at between 15bp-30bp, depending on the amortization profile and previous comparable contracts. TF: How much growth are you predicting for your export finance business and what is maximum deal size and volume that you can take on each year? Gotrane: We forecast the ECA business could reach €1.5 to €2.5 billion each year, although it is a cyclical business. We do not disclose our internal guidelines but obviously we have to put a ceiling for each deal and for amounts lent every year. TF: Do you have tenor limits that you will not go beyond? Gotrane: As Caffil has been able, every year, to raise funding up to 30 years, we have some room to manouvre. But consistent with our very conservative financial management, we have decided on a maximum tenor which is well below this potential maturity. TF: Can borrowers approach you directly or must they go via Coface? Gotrane: Borrowers need to speak to their usual banks. Those banks could request a price from SFIL, and we have signed 17 agreements with banks to define the due diligences they have to perform. The commercial banks will have to deal with the eligibility of a potential financing from Coface. TF: Do you have a second transaction in the pipeline? Gotrane: We have several. On average they are smaller than our first transaction and are all in different sectors. TF: In light of your deal and BBVAs recent cedulas deal, should and could the covered bond market have a greater role in refinancing export credit backed debt? Gotrane: Yes - we believe that export credits carrying an explicit guarantee could be attractive assets for a covered bond. But also, we think that each issuer has to choose the right way to structure such assets.

In the case of SFIL-Caffil, the export loan is granted by SFIL and the cover pool of Caffil has no exposure to the export business but only a loan to SFIL with the explicit guarantee of the state. At the end of day, the exposure on the sovereign in the cover pool should increase but the covered bond vehicle will be never exposed directly to export credits.

Mandate mill US-based aircraft lessor Aircastle has sent out bank invitations for a $75million unsecured three-year working capital loan. DBS has been mandated to lead arrange the deal which is being offered at three levels of participation. The final deadline for commitments is November 4. Bookrunners will meet banks next week to launch syndication of a $1.25 billion three-year revolving credit for Pemex. Bank of America Merrill Lynch, Citi, Credit Agricole, Mizuho and SMBC are coordinating the revolver which is expected to price at between 100bp and 150bp over Libor - considerably higher than the 85bp Pemex paid on its $5.25 billion two-part loan in February 2015. Spanish gas distributor, Enagas is in talks with its relationship banks for a refinancing of the €1.5 billion ($1.68 billion) five-year revolving credit it signed in December 2014. Guidance pricing for the refinancing has not been released, but it will need to be competitive given the borrower is a regular issuer in the bond market and closed a $750 million 12-year deal priced at 60bp in April. Bank bids for the $655 million 20-year debt financing for the $900 million Bahrain LNG project have been submitted. K-Sure and Kexim are covering around 80% of the debt, while a syndicate of local banks led by Apicorp are taking on the uncovered tranche. Societe Generale and Verus Partners are financial advisors to the sponsors - Nogaholding (30%), Teekay (30%), Samsung (20%) and Gulf Investment Corporation (20%) – and Shearman and Sterling are providing lender legal counsel. China National Offshore Oil Corporation (CNOOC) has issued a request for proposals for around $1 billion of three-year debt to refinance part of the facility it raised in 2013 to fund its acquisition from BG of a larger stake in the Queensland Curtis LNG project in Australia. Proposed pricing on the refinancing is rumoured to be considerably tighter than the 140bp margin on the 2013 deal. Commodities traders Mercuria Asia Group Holdings and Mercuria Energy Trading have been giving presentations to lenders in Asia and the Middle East on a potential $900 million joint borrowing. A Japanese sponsor – rumoured to be Mitsui - is looking for financing for a $100 million-plus power project in Iran.

Top Stories Gunvor raises $500m credit line for new US operation The new office will initially be trading refined products, natural gas and asphalt/bitumen, although there are plans for further expansion through acquisitions in mid-stream and downstream.

Otary's Rentel Wind closes with dual ECA backing Siemens will supply 42 units of its D7-type offshore wind turbines for the project. ABB is designing and installing a 220-kV export cable, and STX Europe will supply the offshore substation. Specialist contractors for foundations and laying cables are being led by Dredging International.

Cofco Agri closes syndication on $2.6bn

Bank appetite for the deal was strong and the borrower, which was formed after Chinese stateowned Cofco International acquired the agricultural unit of troubled commodities trader Noble Group in late 2015 for $750 million, scaled back commitments following a 100% oversubscription

GNPC raises standby L/C for Sankofa gas project The deal guarantees the borrower’s payment obligations to Vitol and ENI related to the sale of gas to be extracted from the Sankofa gas project, off the coast of Ghana.

Mitsui OSK raises $987m hybrid for vessel procurement The deal enables MOL to raise equity-like funding without diluting its equity base. At the same time the loan is eligible for equity treatment by the rating agencies.

News in brief BNPP IP launches €500m SME lending fund The fund will use BNP Paribas’s banking network to originate the loans, and will offer senior secured term loans of seven to 10 years alongside bank loans of about five years.

PGPIC signs €320m NEXI-backed deal with Marubeni Funding will be provided under a usance letter of credit facility, covered by Japan’s export credit agency, NEXI.

Finacity launches CME trade receivables programme CME is a subsidiary of Xignux SA de CV, a Mexico-based industrial group.

Eskom receives $500m loan from China Development Bank The facility will contribute towards Eskom’s current expenditure programme and further stabilise its liquidity position.

ADB signs risk transfer agreement with Sweden The arrangement represents the first time a risk transfer arrangement has been applied to a sovereign loan portfolio of any multilateral development bank.

EBRD approves revolver for Louis Dreyfus Proceeds will finance working capital needs for Louis Dreyfus Group agricultural commodity merchandising operations.

Petrosakh raises local currency working capital Petrosakh is operator of the Okruzhnoye oil field on the eastern coast of Sakhalin Island.

KUKE insures its first African supply contract The insurance coverage was provided under export credit insurance with state treasury backing.

Fermaca pipeline loans signing imminent Proceeds will be used to finance construction of two natural gas pipeline projects in Mexico.

AfDB approves $310m trade finance loan for Ecobank The facility will support small- and medium-sized enterprises and local companies involved in import and export activity.

Standard Bank raises $300m for on-lending to African projects At least $150 million of the facility will support power transactions as part of President Obama’s Power Africa initiative, with up to $100 million available for other strategic infrastructure projects beyond the power sector.

ANI approves financing plans for Colombian toll roads Colombian national infrastructure agency ANI has approved financing plans for three 4G toll road projects, citing letters of credit from local and foreign lenders and DFIs.

Turkish bank trade finance borrowers hit by downgrades The increase in cost of bank borrowing will hit Turkish trade finance borrowers, particularly as higher dollar costs get passed on.

Fangyuan Group raises $385m pre-payment facility Deutsche Bank and ING Bank acted as joint lead arrangers and joint bookrunners.

EDC joins Port of Melbourne lender line-up The sponsors are expecting to reach financial close at the same time as signing the final concession documents with the state government of Victoria, at the end of October.

People and places WFW adds to Singapore aviation team An aviation finance specialist, Kolehmainen joins from Clifford Chance SIngapore, where he spent five years, most recently as a senior associate.

David Herbert rejoins Deutsche's trade finance team He joins from Bank of America Merrill Lynch (BAML), where he headed the Western Europe trade sales team for five years.

Westpac appoints head of trade finance Adnan Ghani joins the bank from the Commonwealth Bank of Australia (CBA).

African Trade Insurance appoints chief underwriting officer Lentaigne succeeds Jef Vincent, the current CUO, who is retiring early next year.

ING appoints ex-Citi trade head

Lemoine joins from Citigroup, where he served as trade head for France for the past 11 years.

Afreximbank names new VP of business development, corporate banking Kamel has been with the bank for 21 years, serving most recently as director of banking operations.

SocGen appoints global transaction banking head In his new role, Desserre will directly oversee four business lines: corporate cash management, cash clearing/corresponding banking, trade finance and factoring.

Markel expands New York trade credit team In his new role, van de Wall will assist business growth across the US, Canada and Latin America.

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