Page 114 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
However, the banks will remain big borrowers in 2007. The state banks and companies dominated the syndication business in 2006: Vnesheconombank raised US$500m at a record low 30bp over Libor and Gazprom raised a US$1.5bn loan at 55bp over Libor in April. However, commercial banks will up the ante in 2007; UralSib plans to raise just under US$1bn in 2007 and MDM bank has said it wants to raise US$3bn in syndications in 2007, to name but two.
Figure 6.3: Russian syndicated loans, by sector, 2002–06 (%)
%
100 90 80 70 60 50 40 30 20 10 0
Source: Dealogic Loanware
Oil & gas FI Metals Other
2002 2003 2004 2005 2006
Leading lenders
The profile of international banks participating in the syndicates lending to Russian companies and banks has been changing fast in the last few years, once the business really began to pick up and the number and type of borrowers diversified.
A few banks dominated the syndicated loans business, but since Russia scored a hat-trick of investment grades form the main agencies in 2005 the Asians have suddenly become big players, to the point where banks such as VTB are specifically marketing themselves to the Asian lenders. Recently, the first Russian banks have opened offices in Asia.
The rates that Russian banks can borrow at have been falling steadily but there is still a big difference between the rates charged to commercial banks and those enjoyed by the quasi- sovereign state-owned companies.
Given the tight pricing now demanded by leading Russian borrowers, the format of bank groups is changing. They are smaller and are dominated by the major international banks, as well as some smaller banks that have, or are looking for, relationships in Russia. Tightly-priced deals require a significant sales effort from the borrowers.
For example, the Bank of Moscow borrowed US$20m in the middle of 2006 in a typical small loan that is part of the process of building up an international credit history with lenders. The bank raised funds at 220bp over Libor, slightly better than the average 240–370bp over Libor which most commercial banks pay. However, in the same year the state-owned banks VTB, Vnesheconombank, Gazprombank and Sberbank all raised money through syndications and paid at the rate of 30–100bp over Libor.
The influence of state-owned enterprises
Part of the reason for this change is that syndicated lending has been politicised. At the start of 2006 it was clear that several large state-owned enterprises would IPO within two years or so. The first to go was the Rosneft US$10.4bn IPO in July 2006 and the state began demanding better prices on its syndications, dangling the prospect of some of the IPO work in exchange.
Rosneft had become very aggressive in negotiations and in April 2006 some Western banks backed out of negotiations for a syndication, refusing to make the interest rates cuts demanded by the state-owned oil company.
In March, Rosneft had sent a request to its foreign creditors, including ABN AMRO, Barclays Capital, Dresdner Kleinwort Wasserstein, J.P.Morgan, Deutsche Bank and Citibank, asking them before 11 April to reduce their floating interest rates to 65bp above Libor on loans totalling US$3.1bn. In particular, Rosneft wanted the banks to retroactively cut interest rates on a US$2bn
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