Russian Banks Awash in Dollars Make Loans Company Debt of Choiceby and
Citi says Russian companies prefer bank loans to bonds
Sberbank's foreign-currency deposits grew 33% this year
More than a year after sanctions against Russia were seen draining the nation’s banks of dollars, lenders are awash in the currency, giving companies ample reason to skip borrowing abroad.
Foreign-currency deposits and accounts held at Sberbank PJSC, the nation’s largest lender, rose 33 percent this year to almost $90 billion as of Oct. 1, according to data from the bank. Lenders are charging some exporters interest rates that are lower than yields the companies would have to offer to sell bonds on international markets, according to Citigroup Inc.
While MMC Norilsk Nickel PJSC and Gazprom PJSC have sold Eurobonds this year, other companies that aren’t blocked from Western capital markets by sanctions are turning to banks instead. EuroChem Group AG, a fertilizer maker controlled by billionaire Andrey Melnichenko, took out a $750 million facility in September from a group of international and domestic lenders, including Sberbank’s Swiss unit and Rosbank PJSC.
While there are “quality issuers in Russia who could access international Eurobond markets," the ones that need funding prefer banks for loans, Irackly Mtibelishvily, chairman of corporate and investment banking at Citigroup for Russia and the Commonwealth of Independent States, said in an interview last week. Lenders can provide dollar financing “at costs slightly better than those offered by international fixed-income markets,” he said.
Amid the corporate interest in loans, issuance of dollar- and euro-denominated bonds has tumbled about 68 percent in 2015, according to data compiled by Bloomberg. Norilsk Nickel, Russia’s largest miner, was said to have paid less for a 10-year loan than it did for a seven-year Eurobond in October.
The company raised $1.2 billion in a credit line from Sberbank at about 6 percent, according to two people with knowledge of the offering, who asked not to be identified because the details are private. Its $1 billion bond, which attracted four times that amount in bids, was priced to yield 6.625 percent. The cost of the credit line was "comparable" with that of the Eurobond, Norilsk CFO Sergey Malyshev said by e-mail last week, without providing further details. The yield on the bond declined to 6.14 percent since it was sold in Oct.
“Banks are the better alternative at the moment,” Olivier Harvey, the head of investor relations for EuroChem, said by e-mail. “It’s not necessarily about preferring one debt instrument over another. It’s a question of cost. If you have cheaper alternatives, why print?”
That hesitation threatens to hamper a recovery in international bond issuance, which has been strained amid a slowdown in investments by Russian companies as the worst recession since 2009 curtails their need to raise cash.
Many enterprises accumulated dollars at the end of 2014 during the worst of the ruble free fall, giving them cushions of hard currency for refinancing, according to Maxim Miller, an emerging-market strategist at JPMorgan Chase & Co. "There are fewer incentives to borrow" including in the Eurobond market, Miller said by phone on Nov. 2.
The bond pipeline isn’t totally dry. Russian companies may sell another $3 billion this year to refinance debt, Sberbank CIB analyst Alexander Kudrin said in an October research note.
For borrowers seeking cash, Sberbank, which holds about 45 percent of Russian retail deposits, is in a unique position to lend dollars because its liabilities exceed assets in foreign currency, said Andrey Klapko, a banking analyst at Gazprombank JSC.
"Over the past year we have received a significant inflow of the foreign currency," said Alexander Morozov, Sberbank’s deputy chairman, who attributed stagnant growth in lending in 2015 to a dearth in demand from top-quality borrowers. "We always have good rates for good borrowers, including under foreign currency-denominated loans," he said Oct. 28.
Uralkali PJSC, the world’s largest potash producer, isn’t considering bonds because banks charge less, Chief Financial Officer Anton Vishanenko said on Oct. 27. Steelmaker Novolipetsk Steel OJSC said Nov. 3 it borrowed $400 million of pre-export financing from banks, while iron-ore miner Metalloinvest Holding Co. raised $750 million in a loan in July from a syndicate of lenders including Sberbank.
“For shorter-term borrowings up to five years, domestic bank markets are more liquid and less expensive than the international capital markets,” said Anush Simonyan, the head of UBS Group AG’s investment bank in Russia and the CIS.
(An earlier version of the story was corrected to fix the title of the Citigroup banker)