Political and military tension in Ukraine is threatening to derail $8 billion of international loans sought by Russian companies.
Billionaire Mikhail Fridman’s VimpelCom Ltd. (VIP) is among at least 10 borrowers negotiating loans with U.S., European and Japanese banks, according to data compiled by Bloomberg. Russia’s currency, bond and stock markets rose after plunging when troops seized control of the Black Sea region of Crimea. The cost of insuring the country’s debt against losses is falling after the biggest increase since June.
“Until the situation stabilizes there will be fewer international banks willing to lend in Russia,” said Dmitry Dudkin, the Moscow-based head of fixed-income research at UralSib Capital, part of a group that includes an asset management unit that oversees 45 billion rubles ($1.2 billion). “I just hope the market for external borrowings does not dry out completely.”
Russian companies have been keen to increase borrowing after some of the world’s biggest banks including ING Groep NV lowered the cost of the debt to help cement lucrative relationships. Bankers may re-evaluate potential deals as U.S. and global leaders condemn Russia’s military incursion into Ukraine while threatening economic and diplomatic sanctions.
The average margin on Russian companies’ dollar-denominated loans dropped to about 2 percent more than benchmark rates in 2013 compared with 3 percent in 2012, according to data compiled by Bloomberg. That prompted Russian companies to sign $52 billion of loans denominated in dollars last year compared with $38 billion the previous year, the data show.
The crisis in Ukraine yesterday pushed up the cost of insuring Russia’s debt from losses. Credit-default swaps increased 43 basis points to 234 basis points, the highest since June 24, according to prices compiled by CMA. The contracts dropped to 214 at 1:30 p.m. in London as Russia stepped back from escalating the situation.
Average yields on Russian corporate bonds rose 42 basis points yesterday to 6.25 percent, the highest since June 25, according to JPMorgan Chase & Co. index data.
VimpelCom is seeking a $2 billion credit line and will use part of the proposed facility to refinance debt, three people familiar with the financing said Feb. 25. Artem Minaev, a spokesman for VimpelCom, declined to comment on the deal.
Other Russian companies that have discussed raising debt with banks this year include Sibur Holding OJSC, OAO Metalloinvest Holding Co. and OAO Novolipetsk Steel, people familiar with the financings have said. Potash producer Uralkali OJSC, the export unit of Russia’s nuclear company Rosatom Corp. and Slavneft Oil & Gas Co. have also held talks with lenders.
Anna Lebed, a spokeswoman for Sibur, Sergey Babichenko, Novolipetsk Steel’s spokesman, and Uralkali’s spokeswoman Olga Ilyina declined to comment on the loan discussions. Officials at Rosatom’s Tenex and Slavneft didn’t reply to telephone calls and e-mails seeking comment on the talks.
A spokeswoman for Metalloinvest, who asked not to be named citing company policy, said the company monitors what’s on offer in the debt markets and has no plans to increase its borrowing.
ING Groep NV was the biggest arranger of syndicated loans to companies in Russia and the Commonwealth of Independent States last year, data compiled by Bloomberg show. The Dutch bank has about 7 billion euros ($9.6 billion) of loans in Russia and 1.5 billion euros of lending in Ukraine, bank spokesman Frans Middendorff said yesterday.
“We are more in a ‘risk off’ mode and everybody will be waiting for the interim outcome of Ukraine events and what kind of sanctions will be imposed on Russia,” Alexey Bulgakov, a fixed-income analyst at Sberbank CIB, Russia’s biggest lender, said in an e-mailed statement. “Until this becomes clearer, it will be difficult to set the price of risk for any debt instrument.”
Events in Ukraine will adversely affect capital flows into Russia and the country’s growth prospects, Barclays analysts including London-based Christian Keller wrote in a report. Negative sentiment toward Russian credit will linger after the crisis in Ukraine eases, they said.
Russian President Vladimir Putin quelled concerns of an imminent invasion today helping the country’s Micex stock index to rise 5.3 percent. The ruble strengthened by about 1 percent against the dollar-euro basket used by the central bank, which unexpectedly raised its benchmark interest rate by 150 basis points, or 1.5 percentage points, to 7 percent yesterday.
“When the situation does not look so scary anymore the best Russian names will open the market with new deals,” UralSib’s Dudkin said. Companies may obtain syndicated loans before returning to the bond market because “it’s often easier for a borrower to explain itself to a number of familiar banks.”
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