Bloomberg News

Russian Borrowers Seeking $3 Billion of Loans as Banks Retrench

November 24, 2011

Nov. 23 (Bloomberg) -- Russian borrowers including OAO GMK Norilsk Nickel and OAO Gazprom are seeking about $3 billion of loans as European banks pull back from the region.

Norilsk Nickel is in talks for a $1.5 billion pre-export finance loan, and Gazprom plans to borrow $800 million, according to data compiled by Bloomberg. Moscow-based OAO Sberbank had to increase the interest it offered on a loan two weeks ago by 20 basis points.

European banks are cutting back in emerging markets after being the most active lenders, according to Barclays Capital. The need to boost capital provisions to meet regulatory requirements “combined with dislocated funding markets” may prompt banks to dump as much as 10 percent of their assets, or 500 billion euros ($673 billion), according to Barclays.

“Banks are trying to scale back their exposure to Russia,” said Roland Nash, chief investment strategist at Verno Capital based in Moscow. “This is not because they are concerned about lending to Russia, but because of their own funding circumstances.”

The average interest paid by Russian companies has climbed about 10 basis points in the fourth quarter from 250 basis points more than interbank offered rates in the first nine months, according to data compiled by Bloomberg, as banks pass on their own elevated funding costs.

‘Difficult Market’

Russia’s largest lender Sberbank originally proposed a 130 basis-point margin to match the rate paid by smaller rival VTB Group in July. The bank cited “difficult market conditions” on Nov. 11 when it signed the $1.2 billion loan at 150 basis points more than the London interbank offered rate.

Sberbank’s loan was led by Barclays, Bank of Tokyo- Mitsubishi UFJ Ltd., BNP Paribas SA, Citigroup Inc., HSBC Holdings Plc, ING Groep NV, JPMorgan Chase & Co. and Goldman Sachs Group Inc.

VimpelCom Ltd., Russia’s third-biggest mobile carrier by subscribers, is in bank talks for a $500 million loan to refinance part of its debt, Chief Executive Officer Jo Lunder said on Nov. 8.

Norilsk Nickel will pay 225 basis points more than Libor and the spread will rise to 300 basis points once banks’ fees are included, according to a person with direct knowledge of the deal. Gazprom’s five-year loan is expected to pay a 195 basis point-margin, according to Bloomberg data.

Emerging-Market Dependence

Societe Generale SA and Citigroup Inc. are arranging the five-year loan for Moscow-based Norilsk Nickel, the country’s largest miner. The debt is being syndicated to a wider international lending group.

Euro area banks have lent about $1.2 trillion to emerging- market borrowers, more than the combined investments by other major banks that report to the Bank for International Settlements, according to Barclays Capital.

“Emerging market economies have become quite dependent on euro area banks’ support,” Barclays analysts led by Simon Samuels wrote in a report yesterday. Some “could be significantly affected by the destiny of euro area banks.”

The three-month cross-currency basis swap -- the rate banks pay to convert euro payments into dollars -- is 133 basis points below the euro interbank offered rate, signifying a borrowing environment 16 times more punitive than May 4 when it was 8 basis points, data compiled by Bloomberg show.

The extra yield investors demand to hold European bank debt rather than government securities has risen 44 basis points since the start of the month to 395 basis points, according to a Bank of America Merrill Lynch index. A basis point is 0.01 percentage point.

Norilsk Nickel said this month it may borrow 70 billion rubles ($2.2 billion) over five years from Sberbank paying 9.5 percentage points more than Libor.

“There is appetite for loans, but it is difficult given the time of year, the market conditions and the state of the banks,” Richard Segal, a London-based emerging-markets strategist at Jeffries & Co., said in a phone interview. “Banks are cutting back their asset bases, or thinking about it.”

--Editors: Cecile Gutscher, Michael Shanahan

To contact the reporters on this story: Stephen Morris in London at; Louise Meeson in London at

To contact the editor responsible for this story: Faris Khan at

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