Russia’s Evraz raises rare loan from Western banks

Evraz Holding head office is seen in Moscow. Russia’s largest steelmaker has signed a $425mn syndicated loan, securing less than it had sought as US banks stayed away from the syndicate due to Western sanctions.

Reuters

Moscow

Russia’s largest steelmaker Evraz signed a $425mn syndicated loan, securing less than it had sought as US banks stayed away from the syndicate due to Western sanctions over Moscow’s role in the Ukraine crisis.

Evraz does not feature on any US or EU sanction lists but the slimmer-than-expected deal, amid a near total drought of Western lending to Russian companies, shows the impact the sanctions are having on the Russian economy.

Western debt and equity markets have been largely closed for Russian companies after the US and European Union imposed sanctions on Russian businessmen, companies and state-run banks over the uprising by pro-Russian separatists in Ukraine.

The syndicated pre-export credit facility, which is for five years and initially priced at LIBOR plus 3.5%, is the first such facility a major Russian company has agreed since the latest round of sanctions.

The loan pricing will later depend on the ratio between Evraz’s net debt and earnings before interest, taxes, depreciation and amortisation (EBITDA) for the preceding 12 months.

Evraz, part controlled by Russian tycoon Roman Abramovich, said in a statement yesterday that the proceeds from the loan would be used to refinance its existing debt.

It had net debt of $6.5bn as of the end of last year. Deutsche Bank, ING, Nordea, Societe Generale and Raiffeisen Bank – all of which are headquartered in Europe - were the lenders in the syndicate, it added.

Evraz said in early June it was planning to secure a syndicated loan of up to $1bn with up to 10 banks, over a month before the West imposed its toughest round of sanctions targeting Russia’s banking, energy and defence sectors.

A source close to the deal said negotiations were complicated by the fact that banks are being ultra-cautious due to uncertainty linked to the Ukraine crisis, while a company spokesman said the deal was only finalised on Tuesday.

“The deal was started before the sanctions restricting access to capital markets were introduced. They managed to complete it, but one can’t say that the syndicated loan market has opened,” said another source close to the deal.

“Initially the company planned to expand the participants in the deal and attract more money, but in the current conditions that’s not possible,” the source said.

The credit facility is secured by Evraz’s export revenues and will be paid in equal quarterly instalments after a grace period of 24 months, the company said. Evraz signed a similar syndicated credit facility in 2010, when it paid LIBOR plus its net leverage ratio, then 2.8%, to borrow $950mn.