International banks gear up for Russian lending in 2015

By Sandrine Bradley

LONDON (Reuters) - Bankers are gearing up to resume work on new syndicated loans for Russian companies that are not subject to international sanctions in 2015 to avoid losing further business after the conflict between Russia and Ukraine wiped out revenues in 2014.

The syndicated loans market has effectively been closed to all Russian companies since the last round of Western sanctions against Russia were introduced on September 12, after Russia’s annexation of the Crimea in March.

A functioning loan market is critical in 2015, when $30 billion (19 billion pounds) of loans for Russian companies are set to mature, according to Thomson Reuters data.

“All deals will be treated with caution but we will be doing deals for non-sanctioned Russian entities in the first quarter of 2015. We have to put our teams to work now,” a banker speaking at Euromoney’s 11th annual Central and Eastern European syndicated loan conference said.

Banning sanctioned companies from the loan market hit banks' revenues from Russia in 2014 but banks are still talking to Russian customers in the hope of salvaging some business.

“Our Russian business is down 92 percent on our expectations at the beginning of this year. It is incredibly difficult but we are talking to our clients, we have to remain open where we can,” a second banker on the panel said.

Two international syndicated loans for non-sanctioned Russian banks Promsvyazbank and Otkritie, formerly Nomos Bank have closed since September.

Both deals attracted international lenders, including US, UK, Chinese and European banks, but appetite for Russian risk is still limited. The deals were relatively small at $120 million each and designed to sell with short maturities and high pricing of 250 basis points.

“These deals clearly illustrate that there is limited demand from the international community. With $30 billion of Russian loans set to mature in 2015 this poses a huge challenge,” a third panellist said.

Russian companies seeking to raise international loans have to accept the terms on offer, which in some cases are twice as expensive as existing deals, due to limited bank appetite which is deterring some borrowers.

“Some requests for proposals have gone out and the banks' responses have not met with borrowers expectations,” a fourth panellist said.


The repayment of around $14 billion of oil giant Rosneft's two-year $24.6 billion bridge loan that backed its acquisition of oil company TNK-BP in 2013 could help banks to lend more in Russia by reducing their exposure, bankers said.

Rosneft, which remains subject to international sanctions, said on October 29 that it plans to redeem around $14 billion of the bridge loans between December 2014 and February 2015.

“When the repayment occurs, banks' Russian risk weighted assets will go down considerably. This might help with pricing which could open the floodgates to more deals getting done,” the fourth panellist said.

The repayment of Rosneft's loan could also breathe life into the stagnant Russian secondary loan market, traders said, which could improve liquidity.

“Everyone is happy that Rosneft is repaying. Once exposure to this sanctioned counterparty is dealt with there might be more movement in the secondary market,” a loan trader said.

The secondary price of Russian loans has been falling since September as banks come under pressure to sell loans to reduce their Russian loan exposure before year end.

The value of an $850 million loan for Russia’s largest iron ore producer Metalloinvest fell nearly six percent to around 92 percent of face value on Nov. 19 from 98 percent on Sept. 1, according to Thomson Reuters LPC data.

A $1.56 billion loan for mining company Norilsk Nickel has also fallen around three percent to 94 percent of face value from 97 and a $2 billion loan for VTB Bank fell 2.6 percent to 95 percent from 97.5.

“Banks are showing lower prices as they come under increased pressure to reduce exposure,” the loan trader said.

Few buyers or sellers have emerged yet. Bank compliance departments are preventing loan traders from selling loans for sanctioned companies and non-sanctioned companies are not seeing appetite yet at current levels.

(Editing by Tessa Walsh)