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Russia’s VTB Said to Provide Saudi Loan Amid Sanctions

Russian lender VTB Group has provided a $100 million margin loan to the owners of Saudi Arabia’s Dar Al Arkan Real Estate Development Co., said two people with knowledge of the matter, as the bank seeks new business to offset U.S. and European Union sanctions.

Russia’s second-largest lender outbid other banks to provide the loan, the people said, asking not to be identified as the details aren’t public.

VTB’s loan to the owners of the Saudi Arabian developer is a rare example of the Russian bank lending to an entity in the Middle East. Margin lending in the Gulf Arab region has been dominated by the large U.S. and western European banks.

In a margin loan, a borrower secures a loan by pledging an asset, and typically agrees to hand over cash to the lender if the value of the collateral declines. The lender can usually sell some of collateral if the borrower is unable to post cash. Banks are keen to do these deals because of the lucrative fees.

VTB was not among the top 46 banks ranked by Bloomberg in the Middle East and North Africa for syndicated loans this year. It was ranked 9th for arranging the loans in Russia and the commonwealth of independent states, the data show.

It comes as the U.S. has sanctioned several Russian banks, and the European Union has cut off state-owned lenders from its capital markets over President Vladimir Putin’s stance on Ukraine.

A spokeswoman for VTB Capital, the investment banking arm of the bank, declined to comment. A spokesman for Dar Al Arkan did not return phone calls and e-mails requesting comment.

Infrastructure Investment

Dar Al Arkan, Saudi Arabia’s second-largest publicly traded real estate developer, is benefiting as the kingdom implements a $130 billion investment plan to boost infrastructure. The company, which opened the largest mall in Riyadh in 2012, mostly develops land and then sells it to builders.

The firm raised $400 million from an Islamic bond sale in May at a profit rate of 6.5 percent. Its shares have risen 45 percent this year as profits improve, and after the kingdom announced plans to open its stock market to international investors. Dar Al Arkan repaid a $1 billion Islamic bond in July 2012, the price for which fell below 70 cents on the dollar in 2009 on concern over its financial position.

The European Central Bank is seeking clarification on whether the units of Russian banks operating in the euro area may access ECB funding after a fresh round of sanctions, a person familiar with the situation told Bloomberg News this month.

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