After the rip-roaring success of Norilsk Nickel’s senior syndication of its $2.35bn loan, which saw the borrower raise $2.1bn through a club structure, the general phase of syndication looked like it would be a doddle. Who wouldn’t want to be a part of this success story in these days of low loan volumes? Well, most people, apparently.
Not only were many bankers attached to the deal at senior level miffed that Norilsk was so insistent on syndicating the deal —especially considering the loan amount had already been increased from $2bn —but only two other banks joined in general. Citi — an existing relationship of Norilsk that for whatever reason couldn't justify providing the top ticket — and China Construction Bank, a new lender to Norilsk, according to Dealogic.
Having a new lender come aboard is an achievement, particularly when that new bank is one of China’s big four. But no matter which way it’s cut, only two banks joining during a general syndication is an unimpressive feat.
So what happened? Firstly, the 16-strong senior group looked like this: Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Commerzbank, Crédit Agricole, Deutsche Bank, HSBC, ING, Morgan Stanley, Mizuho, Nordea, Société Générale, Rosbank, SMBC and UniCredit.
Eight of those banks are in the top ten lenders in Russia this year, according to Dealogic. Société Générale, BNP Paribas, BofAML and ING make up the top four spots, in that order.
With a few exceptions, like Citi and JP Morgan, there were no international banks available to join a syndicate that operates in a meaningful way in Russia that wasn't already in the top group. Simply put, there was almost no one left to buy the deal.
And for those few that were considering the deal in general syndication, the terms barely look appealing. Norilsk negotiated unsecured five year money from its lenders whereas it usually borrows through a secured pre-export finance structure. And while the pricing remains undisclosed, it is thought to resemble tighter club pricing rather than the syndication-driven pricing that is more attractive to lenders .
For the top lenders, this problem is mitigated by the ancillary business coming their way. But the lucrative bond mandates have already emerged. In August, Norilsk hired BofAML, Barclays, Citi, Sberbank and Société Générale to bookrun a deal.
This leaves only scraps for those joining in general. They haven’t offered enough to be in the elite inner circle of ancillary business beneficiaries and they’re not earning enough back to make the lending worthwhile.
The shift to club loans rather than true syndicated deals has been apparent for at least a year in Russia. Novatek, Gazprom Neft and X5 have all ignored general syndication to sign club deals this year. And judging from the performance of the general market when Norilsk tried to break from the club structure, it looks like syndication stages could be a poor seam of liquidity for a while.