Page 113 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
Figure 6.2: Russian syndicated loans market, by sector, 2005, 2006 (%)
2005
2006
15%
18%
68%
Source: Citigroup
8%
4%
4% 1%
32%
33%
3% 6%
8%
Oil & gas
Metals & mining Finance Transport Telecomms Other
Leading borrowers
The volume of syndicated loans has been growing exponentially since the business reappeared in 2001 following Russia's financial crisis in 1998. The first round of borrowers was comprised of the big oil and gas companies, which remain large borrowers, but they have since been joined by companies from across the industrial spectrum.
More recently, as with other types of borrowing, the banks have become increasingly active as they look for ways to finance their growing loan portfolios. At the same time, Russian domestic companies are increasingly happy to turn to the domestic banks to borrow as, with the strong appreciation of the ruble, they are becoming more concerned about exposure to foreign exchange risks.
Bank borrowing through syndicated loans reached critical mass in about 2005, when the spreads on this type of borrowing fell dramatically thanks to Russia's improving macroeconomic funda- mentals; both real and perceived risk had fallen dramatically, while the interest rates remained very attractive for lending banks. Banks account for about one-third of syndications as of the start of 2007, with companies from the fuel and energy sector accounting for about a quarter of the total by value (if the handful of state mega-deals in 2006 are excluded from the tally). In 2005, only Russia's top 20 banks could access the international capital markets, but by the end of 2006 the next 30 banks were also becoming active takers of syndicated facilities.
Russian banks turned to syndications as both the cheapest and the fastest way to replenish their coffers as domestic lending took off. The spread between falling interest rates on the internation- al markets and what they could charge on the domestic market meant this remained an attractive business. Over the last five years interest rates for Russian borrowers abroad fell from an average of 430bp over Libor to 180bp over Libor a year, while inside Russia the rates fell from 11.6% to 8.7% a year for dollar-denominated loans. At the same time, the average term of credit abroad grew from one to three years, while on the domestic market the average credit term grew from 18 to 24 months.
The state also became one of the biggest consumers of syndicated credit in 2005, as the Kremlin needed billions of dollars to reassert its control over the oil and gas sector. Gazprom drew an unsecured syndicated credit worth more than US$13bn to buy Roman Abramovich's oil company Sibneft, and Rosneftegaz, a holding company controlled by Rosneft acting on the Kremlin's behalf, borrowed US$7.5bn from Western banks for the acquisition of 10.74% of Gazprom shares. These two loans alone accounted for a quarter of the year's total volume of syndicated loans.
State-owned banks have also been big users of syndicated facilities, but over the last two years increasing numbers of second-tier banks have entered the market. Lenders were initially attracted by the state-owned banks’ quasi-sovereign status, but as the banking sector is clearly on fire they are now tempted by the faster-than-average growth the best of the regional banks are enjoying or the new breed of niche players that have appeared in the financial sector, such as consumer-orientated banks.
By the end of 2006, the pace of growth had slowed as the margins had been squeezed. Interest rate compression of international loans had gone about as far as it could, while competition at home meant the margins from on-lending to the domestic customers was less profitable than it had been.
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