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International banks ruled by hearts, not heads, says Uralkali CFO

Michael Turner / GlobalCapital (UK)
International banks ruled by hearts, not heads, says Uralkali CFO

US and European banks that have cut their exposure to Russian borrowers as a reaction to sanctions from the West are making decisions based on emotions rather than sound business sense, according to Victor Belyakov, chief financial officer of potash firm Uralkali.

“Right now the perception around Russia is a little different from a year ago,” Belyakov told GlobalCapital on Friday. “This attitude of some banks towards Russia is more emotional rather than rational.”

Russian companies have much to offer lenders, including good borrowing histories and higher margins than are found in Europe and the US, according to Belyakov. US banks in particular had become more reluctant, he said. “We really see that some American banks have cut their exposure in Russia,” said Belyakov. “It’s really true. In European banks, some of the procedures take more time than previously.”

“We are working with all of the US banks,” Belyakov added. “They haven’t cancelled their activity in Russia, they just decrease their limits for Russia.” Uralkali, the world’s largest potash producer, is close to signing a $500m loan with international banks. “The deal is due to sign soon,” said a senior loans banker. “But not all banks have credit approval. We are still waiting for a few.”

Uralkali was due to sign its loan this week, and while this is still possible, this is now looking unlikely according to another loans banker at one of the leads.

This is fine for Uralkali. “We don’t have any schedule and we are not in a hurry,” said Belyakov. “Banks are in a hurry and try to sign as soon as possible. We, on the other hand, try to have the best conditions.”

BNP Paribas, ING, Nordea and Société Générale are co-ordinators, bookrunners and mandated lead arrangers on the facility. Originally, Royal Bank of Scotland was also on the top level of the facility. But escalating tensions between Ukraine and Russia pushed the bank to exit the deal, according to bankers away from the UK lender.

Belyakov would not comment on RBS in relation to Uralkali’s loan.

Sberbank lines

As well as the international loan, Uralkali has an undrawn $2bn loan from Sberbank, signed at the beginning of this year. This loan may be drawn to refinance debt.

The firm is not looking to tap the bond markets any time soon, partly because the Russian bond market is shut — there has not been a single Russian Eurobond issued since February— but also because Uralkali wants to cut its leverage ratio.

Net debt was 2.5 times Ebitda at the end of last year. Uralkali is now targeting a net debt to Ebitda ratio of two.

“In the medium term we can see the debt capital markets as a source of financing,” said Belyakov. “But we are also going to decrease our leverage a little bit, so we have to decrease our leverage before considering any opportunities this year.”

The virtual closure of Russia’s international loan market in the wake of the country’s annexation of Crimea in March looks unlikely to lift, despite the imminent signing of Uralkali’s deal.

The volume of Russian loan deals has slowed to a crawl since the US and European Union began imposing sanctions on institutions linked to the regime of Russia’s president, Vladimir

Putin. So far, 45 individuals and 19 companies have been sanctioned, and more punitive measures are being discussed.

While many senior loans bankers have branded the sanctions toothless, there is a fear in the market about what future sanctions could bring. “They’re not a problem, legally speaking,” said a loans banker. “But the problem is what might come.”

Plummeting volumes

The impact of sanctions on Russian loan volumes is staggering. Volumes have plunged in the first and second quarters of this year, compared to the same periods in 2013 and 2012. Only $4bn of loans were signed in the first quarter 2014, and only $2bn this quarter, according to Dealogic.

This is well below the $29bn and $5.8bn signed in the first two quarters of 2013.

Sanction fears appear to have completely halted a five year loan for as much as $1bn for Russian petrochemical firm Sibur, which counts sanctioned Russian citizen Gennady Timchenko as a director. At least three banks have peeled away from senior roles on the loan. Among them was RBS — the loan’s co-ordinator.

Meanwhile, a special purpose vehicle linked to Russian oil firm Rosneft had to abandon talks to cut the margin on a pre-payment loan of around $2bn.

And there are no new Russian facilities in the pipeline. “New deals aren’t being marketed,” said a senior loans banker. “There’s a sense of people waiting on the sidelines.” However, he added that if a top tier relationship name came to the market, his bank would likely join the deal.

Uralkali has been able to proceed with its loan because commercial terms were agreed, at least in principal, before the Ukraine crisis began. This was also an important factor in Russian telecoms firm Vimpelcom signing a $2bn loan at the beginning of April, according to loans bankers.

Uralkali’s operations in the potash industry — rather than politically sensitive sectors such as oil — were also helping to get the deal done, said loans bankers. “Potash is not a sector that will likely fall under sanctions,” added a senior loans banker. “It is a neutral company and a good borrower.”

It is not just working in a non-politicised sector that has helped Uralkali in the loan market.

“What is also very important is that we are about food security,” said Belyakov. “We provide farmers with fertilisers and we have abut 20% market share worldwide.”


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