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Time to put up or shut up when lending in Russia

By Michael Turner
24 Jan 2014

Having the last laugh is satisfying — just ask Russia’s Siberian Coal Energy Co (Suek). The firm is on the verge of signing a hugely successful facility after almost all corners of the emerging market loan universe said that the deal would struggle because of its five year tenor — Suek’s third loan of this length since October 2011. The time has come for lenders to accept how things are, rather than grumbling about how they think they should be.

Suek approached the market for a $1.2bn five year pre-export finance facility at the end of last year. At the time, there was much rolling of eyes and sucking of teeth in the banking community as lenders pointed to Suek’s five year deals signed in October 2011 and November 2012 as proof that the market was probably full of this credit. 

Some loans bankers went as far as to suggest thaTime to put up or shut the loan might not be completed at all — or at least not as a five year PXF — as lenders would no doubt reject lending to the firm on those terms.

But this week, Suek is close to signing the loan for more than $2bn after lenders piled into the deal at the senior level. Everyone that has committed to the deal has been scaled back and more scalebacks are likely to come as Suek is unwilling to increase the loan further. There will most probably not be a general syndication stage as it is unlikely that anyone wants to give up any more of their stake.

This highlights two important points on the state of the Russian loan market. Firstly, that two years of subdued deal flow — plus the noticeable silence from Russian borrowers this year — has taken lenders out of a position to demand anything. Their eagerness to lend to something, anything, has put them almost entirely at the mercy of their borrowers.

The second point is that the enormous support that Suek has received for this deal even after the torrent of naysaying shows that Russian syndicated loan terms have much further to tighten before a deal fails and bankers can start reclaiming some of the negotiating power back. 

Grumble as they might, lenders to Russian companies are in no position to change anything for now it seems.  

By Michael Turner
24 Jan 2014