A $350 million IFC deal for the Industrial Union of Donbass (IUD), set to follow the EBRD’s $200 million loan to Mittal Steel Kriviy Rih, will take multilateral lending to Ukrainian steelmakers way past that by commercial banks this year.
The IFC project, comprising a $100 million “A” loan and a $250 million “B” syndication, will go for board approval in June. The money is earmarked for a modernization programme at the Alchevsk iron and steel works and nearby coke plant, under which open-hearth furnaces will be closed and environmental performance improved.
The deal irritates some commercial bankers, who question the logic of such lending by multilaterals – and feel that their toes are being trodden on. “The whole idea is that the multilaterals go a few steps further than the commercial banks are able to,” one structured commodity financier said. “The question is: does this deal really do that?”
Last summer, SG CIB and ABN Amro syndicated a $250 million, five-year pre-export deal for IUD. SG also teamed up with BayernLB to provide a $44.4 million, six-year export credit, and lent a further $40 million to Alchevsk with backing from Coface, the French export credit agency, to finance equipment imports.
Azovstal, controlled by Rinat Akhmetov’s SCM group, last year borrowed $100 million from a syndicate headed by BNP Paribas and RZB. But this year, so far, the syndicated loan market has been quiet – although bankers say some deals will go through once the political situation in Ukraine becomes clearer.
Need for clarity
The rationale for the multilaterals operating in this territory needs to be clearer, say some staff. They fear that, as the institutions switch focus from central Europe to the former Soviet Union, they are competing not only with commercial banks but even with each other. “The urgency to conclude deals with borrowers in Ukraine is such that the multilaterals seem to be getting in each other’s way,” admitted a source close to the IFC.
The EBRD justifies its $200 million deal for Mittal Steel Kriviy Rih, announced late last month, as a means of supporting energy efficiency and transparent privatization. The seven-year loan to Mittal Steel will be on-lent to its Ukrainian subsidiary – formerly Kryvorizhstal, and still the country’s largest steel producer – which the London-based multinational bought in the reprivatization auction after Ukraine’s “Orange Revolution”.
Olivier Descamps, EBRD business group director for southern and eastern Europe, said the deal showed support for “a transparent and successful privatization” and for the introduction of international business management practices in Ukraine.
Claims made this month by the head of Ukraine’s privatization agency that Mittal has failed to meet its contractual and investment obligations perhaps underline the need in this case for multilateral support.
Valentina Semeniuk, head of the State Property Fund, said on May 12 that legal action against Mittal in the international arbitration court would be considered if it did not respond to the claims by June 6. The fund has demanded Mittal raise wages to a legal minimum and pay annual bonuses to 57,000 employees based on the 2005 results.
Frank Pannier, at Mittal Steel Kriviy Rih, said that to talk about the annulment of the agreement was “illogical and wrong”, and the company has asked for an urgent meeting with property fund representatives.