For some of Russia’s largest companies, life is starting to get back to normal -- at least in the loan market.
After the slowest period for foreign borrowing in at least seven years in the first quarter, international lenders led by Natixis SA, ING Groep NV and Societe Generale SA, provided $530 million to PAO Uralkali this month. The largest potash producer by output last year will pay an annual rate of 3.3 percentage points above the London interbank offered rate, compared with 1.25 percentage points above the benchmark for an $850 million loan for German health care company Fresenius SE & Co KGaA, which has similar credit ratings.
“Every new deal is confirmation that Russia is open for business and international banks can try their hand with non-sanctioned Russian entities,” Ivan Mazalov, a Moscow-based director at Prosperity Capital Management, said by phone. “Credit in general has become more expensive, but it is available for companies without sanctions.”
Lenders are edging their way back as the cease-fire in eastern Ukraine reduces the likelihood of further anti-Russia sanctions, helping companies roll over about $81.5 billion of foreign-currency debt due between April and the end of the year, according to central bank data. OAO Gazprom, Russia’s natural-gas exporter, agreed a $500 million syndicated loan from a group of banks this month, it said today in a financial statement. The company is paying 325 basis points above libor for the loan, which JPMorgan Chase & Co. arranged.
Uralkali’s facility, announced April 20, is the first syndicated loan to a Russian company in a foreign currency since banks including Societe Generale and HSBC Holdings Plc lent $525 million to mineral fertilizer producer OAO Acron in December, according to data compiled by Bloomberg.
The French bank was a book-runner on the biggest volume of foreign-currency syndicated loans to Russian companies last year, according to data compiled by Bloomberg. Murray Parker, a London-based official at Societe Generale, declined to comment.
The loan market still pales in comparison with levels that preceded Russia’s annexation of Ukraine’s Crimea peninsula more than a year ago, which unleashed penalties that block companies including OAO Rosneft and VTB Group from turning to western lenders for cash. The $505 million raised in the first three months marked the smallest first quarter since at least 2008, according to data compiled by Bloomberg.
The revival in Russian assets this year has emboldened some non-sanctioned companies to venture back into the global loan market for smaller amounts of cash if they are willing to pay a premium. EuroChem Group AG, OAO Novolipetsk Steel and coal miner SUEK are discussing international loans, according to three people familiar with the matter.
Uralkali’s loan “sends a signal that such deals are possible and from the lenders’ point of view, if you think the risk is not actually that high, you’re doing quite well out of the extra premium,” Philip Hanson, an associate fellow at the Chatham House research group in London, said by phone.
“The normal situation would be that either the banks would be shy of lending at all or they would insist on a premium because of the political risk.”
Uralkali is rated Ba1 by Moody’s Investors Service, its highest speculative-grade rating. Standard & Poor’s placed its BBB- rating for Uralkali, the lowest investment grade, on watch negative Tuesday after the company announced a $1.5 billion share buyback that S&P said will “weaken its credit metrics.”
The cease-fire in Ukraine and stabilizing oil prices have helped drive a rally in Russia’s currency and bonds this year. The ruble is the best-performer worldwide with an 18 percent advance in 2015, while local-currency government bonds have handed investors a 37 percent return, the most in emerging markets tracked by Bloomberg.
Existing sanctions are more likely to be rolled over than expanded, according to Richard Connolly, a director at the Centre for Russian, European and Eurasian Studies at the University of Birmingham.
“There seems to be no desire whatsoever at the moment for an expansion unless something happens on the ground in Ukraine,” he said. “That might also explain why people are feeling more optimistic about being involved in Russia in the last few months.”