VTB’s $1.5 Billion Loan Seen Thwarted by Sanctions on Russia

VTB Group’s planned $1.5 billion loan will probably be scrapped after the U.S. sanctioned the Russian bank and the European Union cut off state-owned lenders from capital markets, lawyers said.

The second-biggest Russian bank by market value sought to sign the deal last week with a group of lenders led by Barclays Plc (BARC), which included Bank of America Corp. and Citigroup Inc. The latest sanctions mean VTB will struggle to raise funds from international lenders, said London-based lawyers at Slaughter & May and Devereux Chambers.

“I can’t see how this bank is going to be able to proceed,” said Jonathan Fisher, a barrister specializing in financial services at Devereux Chambers. “EU banks, wary of U.S. sanctions, won’t want to touch it and the U.S. banks plainly won’t breach their own laws. These sanctions are going to bite.”

The U.S. measures announced this week targeted VTB Group, its Bank of Moscow unit and Russian Agricultural Bank, joining the EU in escalating penalties for Russia over its actions in Ukraine. European leaders published rules yesterday outlining restrictions on state-owned banks in international capital markets.

Banks are unlikely to risk such loans after recent penalties paid by institutions for not complying with rules, according to Fisher. The U.S. extracted an $8.97 billion fine from France’s BNP Paribas SA for deals that violated sanctions against Sudan, Iran and Cuba.

‘Scuppered’ Loans

“It will now be much harder to find U.S. and European banks willing to sign up to a syndicated loan involving a major Russian bank,” said Ben Kingsley, a London-based partner in law firm Slaughter and May’s financial regulation group. “Loans like this could well be scuppered by the latest measures even if they are not expressly prohibited.”

Barclays spokesman Jon Laycock declined to comment on the VTB loan. Victoria Garrod, a London-based spokeswoman for Bank of America, and Citigroup spokesman Simon Boughey also wouldn’t comment on the loan. VTB spokeswoman Tatyana Novikova declined to comment.

VTB repaid a $3.1 billion syndicated loan on July 14 using its own funds, the bank’s press service said in a separate e-mailed statement. Further plans to attract foreign capital will depend on the bank’s needs and market conditions, according to the statement. VTB was seeking a one-year facility to help refinance a $3.1 billion loan due to mature in July, people familiar with the offering said in June.

State-Owned Banks

The U.S. already imposed sanctions on Russian business targeting companies including OAO Gazprombank and OAO Rosneft. The EU agreed July 29 to prohibit Russian state-owned banks from selling shares or bonds in Europe and published detailed rules on the sanctions yesterday. The Russian government holds 60.9 percent of VTB Group (VTBR), the bank’s website shows. The European sanctions don’t cover loans.

U.S. penalties prohibit U.S. persons from transacting with, providing financing for or otherwise dealing in new debt of longer than 90 days maturity or new equity with the three state-controlled banks, the U.S. Treasury Department said on its website.

Lending to Russian companies has fallen since the crisis began as international banks weigh the political and financial risks of maintaining relationships with clients in the country. HSBC Holdings Plc (HSBA) and Lloyds Banking Group Plc pulled out of a loan for Britain’s BP Plc and Moscow-based Rosneft because of the continued uprising in Ukraine.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan

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