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Syndicated Loans

One Uralkali could make a Russian spring

It is a stock phrase among bankers that no single deal can reopen the Russian loan market. One or two swallows would not make a summer. But Uralkali’s return with a transaction this week must raise the hopes of the country’s other borrowers.

Russian borrowers — once a fixture of the international syndicated loan market — have been all but locked out this year, as banks have shied away from financing companies now that tensions between Russia and the West over Ukraine are so severe.

Uralkali’s loan has been many months in the making, the process having begun in November. And there have been times when the talks seemed to have gone quiet, with bankers unsure if or when they would resume.

But at the same time, there have been high expectations around the deal. Those who at times could not be confident about it getting done were still sure that no other Russian borrower would manage to sign before Uralkali — even as the queue of candidates with credible claims of being able to access the market lengthened.

Some bankers had also said that where Uralkali priced its loan would be important to other Russian borrowers. A strong showing would change the perspective that they would all have to pay at least double the margins they did last year, it was claimed.

Yet at the same time as emphasising the importance of Uralkali’s deal, bankers have insisted that if it came, it would not necessarily unlock the market for others.

As safe and sensible as that sounds, Uralkali’s deal does change things. 

The price of the loan, to start with, is definitely encouraging. For sure, 330bp over Libor will not be the company’s all time favourite funding level, but while it’s a big increase on the 175bp Uralkali paid for its $450m club loan last June, it still beats the expected rule of thumb that Russian borrowers would have to pay “two times last year's margin”, even if the new loan, at four years, has a tenor one year shorter.

The amount Uralkali has achieved with this loan — $530m — is also assuredly at the north end of the $300m-$600m range that it set out to achieve. But the best part of the deal is that it contains an accordion feature, meaning that Uralkali could feasibly increase it to $800m at a later date. That would mean the company had easily fulfilled its funding requirement for 2015, with a bit left over towards 2016.

The accordion feature could be a way for Russian borrowers to get part of their funding done more quickly, while enabling hesitant banks to join the deal later. That could make a difference at a time when no bank can be certain of its peers’ appetite to lend to any borrower, let alone in Russia.

Having got this far, bankers on Uralkali’s deal said they are confident that others will come into its loan. Uralkali’s haul of banks is already impressive, including four of the five institutions that took part in last year’s deal — Commerzbank, ING, Nordea and Société Générale. 

Only UniCredit has not participated this time, but in its place Uralkali found the willingness of Natixis, which led the deal, as well as Rosbank , IKB, Industrial Commercial Bank of China, and China Construction Bank.

Having more banks on a deal is not always a good thing — it can mean more opportunistic lending is required at higher pricing. But if that is the case then Uralkali’s 330bp is perhaps the more impressive.

Russia’s other prospective borrowers this year are numerous: everyone who could feasibly do a loan is trying to do so, say bankers. It may not be the case that this deal will galvanise them — they may be trying as hard as they can already. But seeing one deal get through credit committees and be signed is bound to encourage lenders — and in its size, pricing and structure, Uralkali has set a marker that can act as a template for other deals.

Unless political conditions worsen again, it should be less than another five months before the next Russian loan gets done.

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