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23 February 2016

SUEK goes big as it seizes opening in Russian loan market

SUEK goes big as it seizes opening in Russian loan market
The Russian loan market has brought its 2016 dollar deal debut with Siberian Coal Energy Company (SUEK) signing a long-awaited $1bn pre-export finance facility, its first syndicated loan since January 2014 and exceeding the size of anything out of Russia in 2015.

There have been few deals to celebrate so far in 2016, although Russian miner Norilsk Nickel signed a Rmb4.8bn ($730m) credit facility in January. Bankers said that loan was a sign that Chinese money was becoming increasingly important to the Russian economy.

Since the European Union and US imposed sanctions on Russia, which included a ban on banks providing syndicated loans to some borrowers, activity in the Russian market has been subdued. The smattering of PXF deals in 2015 to well established Russian borrowers Uralkali, Metalloinvest, EuroChem, NLMK were all around $750m.

SUEK's larger size is a positive sign for the market, said bankers involved, but they noted that the deal has been long in discussion. GlobalCapital reported in March last year that the borrower had been looking for a loan for some time, but one banker involved said this week that formal talks for the latest facility had been underway since the autumn of 2015.

“I would love to say that the Russian loan market is back open with this,” said the senior official at one of SUEK's lenders, “but I suspect that there are still names in the market that banks will always want to support."

The banker added that SUEK is not operating in 'the easiest sector', however, and that had been a consideration when putting together the loan.

"Coal is not the flavour of the month," said the banker. "That said, China has not aspired to the same environmental goals as other countries, so you might have expected Chinese banks to be looking at this. The Germans and French also don’t care – in particular the Germans can’t afford to care as half of their industry is on coal."

While there is little indication of sanctions on Russia being rolled back any time soon, the sovereign has also put out bullish signals this month. 

Russia is circling the bond market for a deal of as much as $3bn, although currency options have been left open.

Despite some of SUEK's original lenders stepping away with this refinancing, there are signs that banks' appetite is returning to the region. There were several international firms involved in SUEK's deal.

ING and UniCredit coordinated the loan. The other mandated lead arrangers were Alfabank, Commerzbank, Intesa Sanpaolo, Nordea, Rabobank, Sberbank, and Société Générale.

"You will always have banks who will look at names like this and the likes of Uralkali, EuroChem, Rusal and Evraz," said another banker. "I wouldn’t say they are sought after, but are certainly popular. Even in Ukraine there are names like MHP that they would still be able to finance."

Banks have been trying to reduce their exposure to Russia, said the first banker. But if these lenders are already involved with a borrower and have a current relationship then they will continue to support them, the official added, "unless they have decided to exit Russia, Ukraine or coal altogether".

"Of all the considerations that might impact their willingness to lend to Russian companies, country limits are the least," he said. "Banks have forgotten about country limits, it is anything but that, since there have been so many repayments. The books are looking dangerously empty."

SUEK's loan had a five year tranche and a seven year tranche, both of which are secured against the firm’s export revenue. SUEK launched the deal at $800m with a target amount of $1bn. The larger amount was then oversubscribed, said a third official.

SUEK approached 'a few banks' for the seven year deal, said the official, but only one bank - understood to be Sberbank - made a commitment. That lender also made a commitment to the five year tranche.

"Seven year tenors in Russia have always been a challenge, even in good years," said an official at another bank. "Only Russian banks want to do that – and then some, like Sberbank, will ask to lend for seven years even if the deal is for three."

There is an option to increase to $1.3bn with an accordion facility, for which SUEK is awaiting commitments. All of the banks looking at the accordion are new to the relationship.
“It was a big success,” said another banker on the deal. “The best sort of deals are like the best football games; when you don’t notice the referee - who’s a good referee - and before you know it the game is finished.”

The loan refinances a five year PXF facility signed in October 2011. The previous facility size was $1.307bn and the margin was 270bp over Libor. Bankers did not disclose pricing on the new facility.
ING and UniCredit were the coordinators of the 2011 deal. Commerzbank, Deutsche Bank, HSBC, ING, Mitsubishi UFJ Financial Group, Nordea, Raiffeisen Bank International, Societe Generale, UniCredit were the bookrunners.

Bank of America Merrill Lynch, Barclays, Rabobank were the mandated lead arrangers.

Crédit Agricole, Industrial and Commercial Bank of China and Sumitomo Mitsui Financial Group were the arrangers.

SUEK's latest deal completes its refinancing requirements for 2016. As of December, the company’s net debt was $2,786 generating a net debt to Ebitda ratio of 2.96x. The firm is rated Ba3/-/-.
Source: Global Capital
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