Please banks, I want some more: repeat borrowers test the limits

Suek is the second Russian credit to make a quick return to the market for a large loan this year. It is a decision that risks putting a strain on relationships and frustrating all concerned.

  • 12 Jun 2012
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Siberian Coal Energy Co (Suek) likes doing things the hard way, it seems. Five months after a difficult $1.3bn loan that needed a 50bp price rise during syndication to get signed, the firm has returned to the market again for a deal of up to $700m.

But the quick return risks damaging relationships and has already led to disappointment for the credit. With counterparty limits having been reached, the majority of the mandated lead arrangers (MLAs) from the $1.3bn facility decided not to lend to Suek again this time. This makes getting traction on the new loan tough, as these banks are some of the most prolific lenders into Russia and the CIS. Although the deal has been in the market since early April, only a small handful of international banks are thought to be involved in serious lending discussions.

But the move is a headache for the old bank group too. Some of the lenders that turned down the new loan are now fretting that the lucrative ancillary business they had their eyes on from the $1.3bn deal will now be used to attract new banks to the second loan.

The timing is also far from ideal for lenders, coming only two months after fellow Russian firm Rosneft pushed the boundaries of the market. The oil company sucked another dollop of liquidity out of the market in April by surprising its bank group with a $2.2bn RFP soon after a $2bn loan.

That ordeal left many lenders feeling battered. Now the thought of returning to a credit committee with yet another request for a quick-return big ticket Russian risk is understandably too daunting (and pointless) for many — no matter how important the relationship with the client.

Suek's decision is not entirely irrational: for all the complaints among the banking community, Rosneft's second loan still got signed. And in the wider markets, loan volumes have been making headlines for all the wrong reasons as they scrape along at near record lows. It’s understandable that Suek thought it could be opportunistic and get another deal in.

But the lesson here is that counterparty and country credit limits are largely non-transferrable. Just because banks aren’t lending in the Middle East, for example, doesn’t mean that amount is suddenly free to be doled out in Russia.

If the Suek loan continues to struggle, it will highlight the choice that Russian borrowers must make. They can either tap their relationship banks little and often, keeping within credit limits while allowing regular access to funds. Or they can plan more carefully to borrow infrequently but in large and widely syndicated format. An unholy mix of the two — big and often — can leave deals in limbo.

  • 12 Jun 2012

New! GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 7,171 21 10.72
2 Bank of America Merrill Lynch (BAML) 6,901 20 10.32
3 JP Morgan 4,776 10 7.14
4 Credit Suisse 4,718 9 7.05
5 Lloyds Bank 4,420 14 6.61

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Wells Fargo Securities 68,611.22 170 11.38%
2 Bank of America Merrill Lynch 59,056.08 169 9.80%
3 JPMorgan 56,861.85 163 9.43%
4 Citi 56,521.05 165 9.38%
5 Credit Suisse 44,888.95 123 7.45%