Euro lenders regain CEE form: Uralkali CFO

12.10.2012
Michael Turner / Euroweek

After losing ground to their Asian peers during the summer, European banks are becoming competitive again in central and eastern Europe (CEE), according to Viktor Belyakov, chief financial officer at Russian potash firm Uralkali.

"We usually discuss deals with different banks and try to attract as many banks as possible," Belyakov said, referring to the $205m five year pre-export financing the firm signed in August. "Unfortunately, the liquidity in Europe was very poor at that time."

That deal was led by Bank of Tokyo-Mitsubishi and Sumitomo Mitsui Banking Corp. Industrial and Commercial Bank of China (ICBC), DZ Bank and Natixis joined the deal as mandated lead arrangers and bookrunners. It was the first time ICBC and Natixis had lent to the borrower.

While two European banks were in the deal, many European bankers said the 250bp margin the loan paid was too low. "Almost all of us were priced out of Uralkali," said a Europe-based banker away from the deal at the time.

"The PXF [pre export finance] was quite cheap." Belyakov conceded. "Japanese and Chinese banks were more competitive compared to their European peers."

However, this is beginning to change. "Liquidity in Europe is better now than it was," said Belyakov. "There have been indications from different European banks that they are interested in providing loans."

The firm is in the early stages of a $5.8bn expansion project, which will see four mines developed in Russia. The project is slated for completion by 2021. Uralkali will be looking to the syndicated loan market for more financing, though not before the end of the year, Belyakov added. "Our capex for the next year could easily be financed by our own cashflow, but we will keep this level of leverage to have a more efficient capital structure."

Uralkali will continue using the pre-export finance structure, as this is still the cheapest way for the firm to raise funds. The credit is also considering issuing Eurobonds. However, bond plans have been postponed until pricing gets closer to Uralkaliís loans.

"Right now the gap in debt capital markets and PXF is bigger than 1.5% a year," said Belyakov. "This makes our interest rate for bonds almost 50% higher than we have right now for PXFs — this is a huge gap."

Vienna 2.0 still on cards

Uralkaliís nod to Europeís banks comes as one of the leading organisations behind the second Vienna Initiative — a scheme which aims to avoid rapid deleveraging in CEE particularly by western Europeís lenders — says that bank deleveraging across emerging Europe has not been as fast or widespread as first thought.

"Deleveraging, thank god, hasnít happened as feared, though it has still happened," Suma Chakrabarti, the new president at the European Bank for Reconstruction and Development (EBRD) told EuroWeek. The initiative — dubbed Vienna 2.0 — will now focus more on policy among central banks, with the EBRD still pushing for the initiative to be implemented, Chakrabarti added.

The other institutions behind Vienna 2.0 are the European Council, European Investment Bank, IMF and the World Bank.

According to a report commissioned by Vienna 2.0, between June 2011 and March 2012, banks that report to the Bank for International Settlements (BIS) reduced their positions by more than 5% of GDP in Bulgaria, Croatia, Hungary, Montenegro and Slovenia.

Total deleveraging in CEE and southeast Europe came to $60bn, or 1.3% of the regionís GDP, in the same period.

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