Lukoil Leads Tripling in Loans as Rates Tumble: Russia Credit
Lukoil Leads Tripling in Loans as Rates Tumble
Alexander Zemlianichenko Jr/Bloomberg
Lukoil got a $1.5 billion one-year unsecured loan from banks including WestLB AG and Citigroup Inc. at annual interest 140 basis points above interbank rates, compared with 400 on debt backed by oil sales in 2009.
Lukoil got a $1.5 billion one-year unsecured loan from banks including WestLB AG and Citigroup Inc. at annual interest 140 basis points above interbank rates, compared with 400 on debt backed by oil sales in 2009. Photographer: Alexander Zemlianichenko Jr/Bloomberg
Russian companies from OAO Lukoil to the oil unit of OAO Gazprom are taking advantage of a plunge in interest rates to triple borrowing in the market for syndicated loans.
Corporate loans rose to $20 billion this year from $6.7 billion in the same period of 2009, according to data compiled by Bloomberg. Lukoil, Russia’s largest non-state oil producer, got a $1.5 billion one-year unsecured loan from banks including WestLB AG and Citigroup Inc. at annual interest 140 basis points above interbank rates, compared with 400 on debt backed by oil sales in 2009. OAO Gazprom Neft borrowed $1.5 billion for five years at a spread of 210 basis points, or 2.1 percentage points, last week.
Banks are stepping up lending in Russia as the world’s largest energy exporter recovers from a record 7.9 percent economic contraction in 2009, with growth accelerating to 5.2 percent in the second quarter. Companies paid interest rates averaging 17.4 percent at the start of last year to borrow from local banks as foreign lenders retreated to focus on their home markets, according to Russia’s central bank.
“There has been a real sea change in attitude compared with six months ago,” said David Pepper, head of central Europe, Middle East and Africa loan syndication in London for WestLB. “Companies like Lukoil, which had to tap the market with pre-export finance deals last year, have been able to come to the unsecured market during the past quarter at much tighter pricing.”
Market Recovering
WestLB of Dusseldorf, Germany, overtook Paris-based Credit Agricole SA to become the biggest underwriter of Russian syndicated loans this year, from No. 13 last year, data compiled by Bloomberg show.
“The market for bank loans is gradually recovering, yet it is still behind pre-crisis levels both in terms of the cost of funding and its tenor,” Sergey Nekrasov, head of financial institutions and capital markets at Lukoil, said in an e-mailed response to questions today. “It would not be accurate to say that the syndicate loan market has recovered, as nearly all deals are structured as clubs.”
Russian companies are paying annual interest at an average of 310 basis points over benchmark interbank rates on loans obtained this year, compared with 400 basis points last year, according to data compiled by Bloomberg.
Loans Beat Bonds
Russian companies are returning faster to international loans than to the Eurobond market. Foreign banks provided 71 percent of loans to Russian companies this year, up from 12 percent last year, according to data compiled by Bloomberg. International deals accounted for 49 percent of bond sales this year compared with 45 percent last year and 70 percent in 2007, the data show.
Nomos Bank, a Moscow-based lender, borrowed $100 million for one year from banks including WestLB, New York-based JPMorgan Chase & Co. and VTB Group of Moscow on Aug. 27 at an annual interest rate of 250 basis points above the London interbank offered rate, data compiled by Bloomberg show. Three- month dollar Libor was at 0.29688 percent, making the interest rate about 2.8 percent. Nomos Bank’s $350 million of 8.75 percent five-year bonds sold in April is yielding 7.995 percent today.
Lower Rates
Nomos Bank is rated Ba3 by Moody’s, three levels below investment grade and five short of the Russian government at Baa1. Moody’s ranks Moscow-based Gazprom Neft at Baa3, two levels below its parent company and the Russian government, and Lukoil one step higher at Baa2.
“Companies are lured by very low interest rates for loans,” said Dmitry Dudkin, head of fixed-income research at UralSib Financial Corp. in Moscow. “Were you to sell a Eurobond you would probably end up paying 6 to 7 percent, whereas with loans you can get the money at 2.5 to 3 percent, 4 percent maximum.”
Foreign lending to Russia seized up in 2008 as the collapse of Lehman Brothers Holdings Inc. froze credit markets worldwide. Russian companies borrowed at least $26.9 billion in 2009 from state-controlled domestic lenders as foreign lending dropped, according to central bank data.
Rusal, Mechel
United Co. Rusal, the world’s largest aluminum producer, restructured almost $17 billion of obligations last year to more than 70 Russian and foreign lenders, the country’s biggest debt workout, as the global recession caused a slump in demand for metals.
Rusal of Moscow cut its debt to $13.1 billion as of June, helped by $2.2 billion of proceeds from its initial public offering in Hong Kong in January. The company agreed last month to borrow $4.6 billion in three-year loans from OAO Sberbank to refinance a $4.5 billion credit from Vnesheconombank. Rusal doesn’t have credit ratings.
OAO Mechel, a Moscow-based metals and mining company that breached agreements on $4.2 billion of loans in the fourth quarter of 2008, is borrowing $2 billion in unsecured three- and five-year loans from banks including Edinburgh-based Royal Bank of Scotland Group Plc and ING Groep NV, based in Amsterdam, to reduce its debt costs, data compiled by Bloomberg show. Mechel is rated B1 by Moody’s, four steps below investment grade.
‘Few Options’
“Last year, Russian borrowers had few options but to turn to the state-owned banks,” said Pepper. “For top-tier names, the market has now returned to where it was pre-2008, in terms of the international banks being their primary source of liquidity.”
The ruble gained 0.2 percent to 30.8500 per dollar by the 5 p.m. close in Moscow today, rising from its weakest level since Aug. 25. Non-deliverable forwards, or NDFs, which provide a guide to expectations of currency movements and interest rate differentials and allow companies to hedge against currency movements, show the ruble at 31.0745 per dollar in three months.
The yield on Russia’s dollar bonds due in 2020 fell 9 basis point to 4.579 percent. The yield on the country’s ruble notes due November 2014 fell 2 basis points to 6.84 percent.
The cost of protecting Russian debt against non-payment for five years using credit-default swaps was unchanged at 168 basis points, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Yield Spread
Russia credit-default swaps cost the same as the contracts for Turkey, which is rated four levels lower at Ba2 by Moody’s Investors Service. Russia swaps cost as much as 40 basis points less on April 20.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 4 basis points to 217, according to JPMorgan EMBI+ Indexes. That compares with 160 for debt of similarly rated Mexico and 215 for Brazil, which is rated two steps lower at Baa3 by Moody’s.
The yield spread on Russian bonds is 70 basis points below the average for emerging markets, down from a 15-month high of 105 in February, according to JPMorgan indexes.
The average cost of domestic corporate loans dropped to 10.5 percent in July, according to central bank data. International banks are increasing funding as crude oil, which accounts for about 25 percent of the country’s gross domestic product, has stayed above $70 a barrel for the past three months, climbing to $75.07 today from as low as $35 in February 2009.
TNK-BP, the oil producer owned by BP Plc and a group of Russian billionaires, is seeking $2 billion of three-year loans from banks including WestLB to refinance existing facilities, two people familiar with the deal said in August. Interest margins and fees will be about 200 basis points over Libor, according to the people. The company’s bonds are rated Baa2 by Moody’s.
Risk Perception
Gazprom Neft increased its loan by 50 percent from $1 billion after lenders offered more funding than unit of the state-controlled gas monopoly had sought. The company cut its cost of funding from a spread of 500 basis points on last year’s $500 million unsecured three-year loan.
An official for Gazprom Neft, who refused to be identified citing company policy, refused to comment when approached by Bloomberg News.
“There is a perception within the market that the credit risk of Russian companies is improving,” said Quentin L’Helias, head of structured finance syndication at Societe Generale SA in Paris. “Any of the large investment-grade oil and gas players could now have access to unsecured funds.”
To contact the reporter on this story: Karen Eeuwens in London keeuwens@bloomberg.net; Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Faris Khan at fkhan33@bloomberg.net
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