March 14, 2014 / 3:07 PM / 5 years ago

RLPC-Banks put Russian syndicated loans on hold after Ukraine crisis escalates

* Bankers wait to see developments in Ukraine crisis

* Billions of dollars of loans on hold

* Vimpelcom, Uralkali, Sibur among companies affected

* Bankers already reviewing loan terms and conditions

By Sandrine Bradley

LONDON, March 13 (Reuters) - The Russian syndicated loan market has ground to a halt, putting billions of dollars of loans in the pipeline on hold, as banks await the political fallout of a referendum in Crimea and possible economic sanctions on Russia, bankers said.

Russian companies, including mobile phone operator VimpelCom and Uralkali, the world’s top potash producer, are now facing potentially higher borrowing costs when lending resumes. That is adding to the risks for Russia’s economy as it is threatened with U.S. and EU sanctions if Sunday’s vote in Crimea on whether to secede from Ukraine and join Russia goes ahead.

Nearly 20 new loans for Russian companies were in process in early March and talks were advanced on $5.5 billion of new loans, including a $2 billion three-year loan for VimpelCom, the country’s third-biggest mobile operator.

International banks are dragging their feet on loan commitments, including deals already approved by banks’ credit committees, bankers said, as they try to buy time to gain clarity on the rapidly changing political situation.

Commitment deadlines on at least one major loan were not met last week after only two of the 10 banks invited had responded by the deadline, bankers said on Friday.

“Banks are saying that they’re still open but they are not doing any business. Primary Russian deals are on hold,” a senior banker said.

As well as VimpelCom, other Russian companies with loans of up to $1 billion in progress include petrochemicals firm Sibur Novolipetsk Steel (NLMK) and iron ore producer Metalloinvest. Uralkali is seeking a $500 million refinancing.

“No-one in their right mind is going to ring up a client now and say they are good for the money, the client doesn’t even expect that,” a second senior banker said.

Russia shipped more troops and armour into Crimea on Friday and repeated its threat to invade other parts of Ukraine, showing no sign of listening to Western pleas to back off from the worst confrontation since the Cold War.

The rising tension sent Moscow’s stock market plunging 5 percent before clawing back some losses and Russian debt insurance costs surged to a near two-year high. Some analysts say Russia’s economy could slide into recession if sanctions are imposed.


Bankers are taking a ‘wait and see approach’ to repricing agreed loans until the implications of the political situation are clearer. But they are already reviewing terms and conditions and are building extra protection into the loan documentation to cover the possibility of economic sanctions.

International banks have been discussing including Russia in existing economic sanction clauses that were originally put in place to deal with Iran, Libya and North Korea.

The sanction clauses are based around the legality of lending once economic sanctions have been imposed and allow loan agreements to be cancelled if that happens.

“No one is signing any documents without the inclusion of U.S., U.N., EU and UK sanctions protections. This has been in standard documents for a while but the Russia situation has highlighted the case for including all Russian names,” a third senior banker said.

Banks are also concerned that there could be a clampdown on U.S. dollar payments if sanctions are enforced, as most internationally syndicated Russian loans are denominated in dollars.

“Banks are getting nervous about what might happen. I don’t think institutions have views yet as it’s all evolving,” a loan syndicate head said.

Russian loan pricing had been falling for the last 12 months, reflecting growing interest by international banks in lending to Russia, and borrowers such as Sibur and Uralkali had been initially seeking to beat Gazpromneft’s benchmark pricing of 150 basis points (bps) last December.

Borrowing costs are almost certain to rise now after Russia’s aggression in Ukraine, bankers said.

“There is no point repricing if you don’t know how this is going to play out. Are you repricing to the crisis and sanctions or a more moderate level?” the loan syndicate head said. (Editing by Tessa Walsh and Susan Fenton)

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