Russians Borrow More As Loans Fall Globally

LONDON — Russian companies borrowed a total of $39 billion in syndicated loans in the first half of 2008, up from $36 billion in the same period of 2007.

Lending activity in Russia has remained buoyant in the wake of the credit crunch compared with Europe, Middle East and Africa as a whole, where loan volume has fallen 44 percent year on year, according to Reuters Loan Pricing Corporation.

The country's borrowing total makes it the third-busiest country in the region, behind Britain and France, its highest ranking to date. Borrowing activity in Russia, fueled by high commodity prices, has been driven partly by firms looking for acquisition opportunities at home and abroad — particularly in the metals and mining sector.

Steelmakers Mechel, Severstal, Evraz and TMK, miner Norilsk Nickel and aluminum producer United Company RusAl all secured acquisition-related loans.

Metalloinvest and Novolipetsk Steel made nonacquisition-related debut pre-export financings, and titanium producer VSMPO-Avisma will follow.

Most Russian borrowers appointed large mandated lead arranger groups, a popular strategy for banks in 2008 as it reduces the amount needed to raise in syndication and reduces lender risk.

The second quarter saw Russia's bank borrowers access the loan market for the first time this year, but they had to pay higher prices.

Raiffeisenbank secured the sector's first deal with a $1 billion, two-year loan that paid a margin of 65 basis points over the London interbank offered rate, compared with the 35 basis points it paid in 2006. With 11 arranging banks, the deal did not have to raise much in retail syndication.

Loan volume in Russia was boosted by the closure of the bond market to the country's firms until the second quarter.

The recent reopening of the bond market in Russia was welcomed by loans bankers as it will free up liquidity and take the pressure off a crowded loan market that had started to put constraints on lenders' country risk.

"The return of the bond market is great news for us, as bridge loans can be taken out and liquidity will be freed up," one banker said.

The return of the bond market has raised questions about relative value because there is a large gap between bond and loan pricing, and investors are expected to chase higher bond yields.

Margins on Russian loans have increased since the credit crisis hit but are still lower than bonds and credit default swaps, as loan pricing is driven by relationship lending, which keeps margins artificially low. Bankers do expect a convergence in bond and loan pricing — while loan pricing is rising, increased liquidity in the bond market is expected to cause spreads to fall.

Russia's strong showing in the loan market in 2008 could slow in the second half as banks' appetite for bonds return, bankers said. "I think in terms of Russian corporate supply, activity seems to be tapering off," a second banker said. But "what you can't predict is event-driven transactions."