LONDON, Sept 3 (Reuters) - EU proposals to ban syndicated loans to Russian government-owned banks and institutions will sink some European banks' efforts to carry on lending in Russia and means that no Russian loans are likely to be signed in 2014, bankers said on Thursday.
Fresh EU sanctions, in response to Russia's invasion of Ukraine, widen a ban on borrowing or raising capital in Europe to all Russian state-owned companies from just Russian government banks.
The proposals, which included a ban on all syndicated EU loans to Russian government-owned banks and institutions, were raised at a meeting of European Union ambassadors in Brussels on Monday.
EU governments will make a decision on the sanctions by Friday.
"If the ban goes ahead it will be the final nail in the coffin for the Russian syndicated loan market," a European loan banker said.
If passed, the sanctions will kill the efforts of a small group of European banks with a presence in Russia that are motivated to keep lending to Russian companies to maintain their Russian business. [ID: nL6N0QD3BR]
US and Asian banks have shied away from Russian loans since March, but European banks with Russian franchises have tried to keep refinancing existing loans, including a $425 million loan for Russia's largest steel maker Evraz, which signed last month.
Russian fertiliser company Eurochem managed to sign a $750 million, eight-year project financing for its Usolskiy potash project last Friday before the new EU sanctions were discussed on Monday.
The non-recourse project financing was provided by Russian banks Rosbank and Sberbank, along with Credit Agricole CIB, ING, Societe Generale and Unicredit, which have a presence in Russia, and HSBC.
Russian nuclear company Techsnabexport (Tenex) may not be as lucky and could be an early victim of the new sanctions, along with a potential new loan for oil giant Gazpromneft.
Deutsche Bank is co-ordinating the loan for Tenex, which was one of a handful of syndicated loans for Russian companies that were still moving forward.
Tenex approached banks seven months ago for a $500 million new-money loan before Russia annexed Crimea, which was progressing although Gennady Timchenko, who owns a small stake in the company, was named on a US sanctions list.
Bankers were confident that Tenex's loan would be completed as recently as Monday, when a bank meeting was held in Moscow, but are now saying that it will be cancelled if the new EU sanctions are adopted.
"Tenex has not yet been executed or funded so if there is an outright ban on syndicated lending it will not get done," the European loan banker said.
Tenex was not immediately available for comment.
Gazpromneft sent a request for proposals to banks last month for a new five-year loan, which is also unlikely to happen if the EU sanctions are passed, bankers said.
Gazpromneft could not immediately be reached for comment.
Although the new EU sanctions address syndicated loans explicitly for the first time, the loan market has effectively been closed to Russian borrowers since May, as US sanctions started to bite.
"The syndicated loan market is effectively shut. There will be no new deals until the New Year," a second banker said.
The market slow down could however last longer as international banks start to scale down their lending operations in response to a dramatic drop off in business.
"There will be no new business for a year minimum," a third banker said.
Russian borrowers could face higher borrowing costs as they are forced to rely on more expensive loans from Russian banks, rather than cheaper dollar or euro-denominated loans from international banks, which have been their preferred funding option.
"Russian borrowers are going to Russian banks now for funding rather than having to endure painful and lengthy discussions with Western banks," a fourth banker said.
Russian borrowers are also switching to bilateral loans, which are smaller, more private loans between borrowers and individual banks. (Editing by Tessa Walsh)