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. Last Updated: 07/27/2016

GAZ Agrees With All but Alfa on Restructuring

VedomostiWorkers assembling a van at a GAZ plant in Nizhny Novgorod. The automaker is seeking a five-year loan extension.

GAZ Group has agreed with a group of its creditors on terms for restructuring 40 billion rubles in debt — but the deal could be disrupted by Alfa Bank, which is not satisfied with the agreement.
A committee of GAZ’s creditors approved the restructuring terms, and on Thursday the automaker sent the agreement to banks for approval by their credit committees, Russian Machines chief Valery Lukin said.
Billionaire Oleg Deripaska owns 61 percent of GAZ Group through Russian Machines, part of his Basic Element holding.
Under the restructuring agreement, the banks will give GAZ an additional five years to pay off its debt. During the first half-year, the automaker will not even have to pay interest, then for the next two years they will not be required to pay down the principal.
This year, the interest rate will be 17 percent, which will be four percentage points above the Central Bank refinancing rate, Lukin said. Banks will have the right to seek changes to the interest rate, but they will have to justify the requests.
Twelve Russian banks participated in the talks, among them VTB, Sberbank, Gazprombank, Alfa Bank, UralSib, and subsidiaries of Commerzbank, Swedbank, and Raiffeisenbank, but 18 may end up signing the agreement. Earlier this month, a syndicate of foreign lenders that includes Royal Bank of Scotland and HSBC and controls $215 million in debt decided to join them, Lukin said.
The banks agreed to convert the loans to rubles and move the jurisdiction for the loan agreement from Britain to Russia.
A spokesperson for Raiffeisenbank, which was part of the syndicate, confirmed Lukins comments. None of the other foreign banks was immediately available for comment, but employees at five lenders, including two foreign ones, also confirmed the information.
“Its a unique deal in Russia. After all, we dont have legislation that covers such agreements,” Lukin said.
GAZ prepared the agreement along with the banks. The creditors committee included representatives from the Industry and Trade Ministry and four banks. Alfa Bank was to develop a plan for the collateral, Sberbank handled the framework, Raiffeisenbank did the terms and VTB developed the oversight system for the use of the funds, Lukin said.
By April, the majority of its creditors had given the deal preliminary approval, he said, attributing the delay to the governments decision to change the status of state loan guarantees. Last week, the government agreed to provide 20 billion rubles in such guarantees to several companies in GAZ Group.
The state backing will cover 50 percent of the restructuring, while the rest will be covered by the automaker. Lukin said the collateral which was appraised by Colliers would include around 15 percent of GAZs treasury shares. The company also agreed not to pay options or bonuses to management while the restructuring agreement is in place.
The actual signing is expected to take place by August 1, Lukin said.
Sberbank will present the agreement with GAZ to its credit committee for consideration tomorrow, and I think well approve it, said the banks deputy chief executive Yevgeny Korolyov. Raiffeisenbank also agrees with the terms, managing director Nikita Patrakhin said.
Patrakhin said he believed nearly all of GAZs creditors supported the deal.
But for the deal to take effect, all 18 banks must approve it, Lukin said.
Alfa Bank will not sign the agreement, a representative said. We think the business model presented by the GAZ management is ineffective. A five-year delay might be acceptable for foreign or state banks, but we cant risk our depositors money, he said.
I hope they will reconsider. No one, including Alfa, has offered a better restructuring plan, said Sberbanks Korolyov.
Alfa Bank is the only lender protesting the framework of the restructuring, the bankers interviewed by Vedomosti said.
In March, President Dmitry Medvedev criticized banks that have lent to major industrial groups for directly threatening the businesses by not cooperating on debt talks.
A situation where an organization, even if it has a set of lawful demands, can stop the work of a major holding cannot be permitted, Medvedev said. He suggested that the government work individually with those banks that do not understand.
The following day he met with Alfa Bank chairman Mikhail Fridman, who released a joint statement after the meeting with Basic Element owner Oleg Deripaska that said management from their companies were working toward a way to pay back the loans.
The president made his position clear, a Kremlin source said, and if Alfa has its own business preferences, thats Alfas business.
The government will not interfere in the restructuring of GAZ Groups debt, said Dmitry Peskov, Prime Minister Vladimir Putins spokesman.
He said the company had already received an unprecedented amount of state guarantees, but thats all we can offer, the company should reach an agreement with its creditors itself.
During a meeting chaired by First Deputy Prime Minister Igor Shuvalov, representatives of Alfa Bank promised to continue their talks with GAZ Group about restructuring loans under certain conditions, said Yaroslavl Governor Sergei Vakhrukov, who was at the meeting. He would not name the conditions.
The problem is not with GAZ, employees at several of the automakers other creditors said. Alfa wants to take a comprehensive approach on Basic Elements debt, with it being restructured all together with adequate collateral, such as a stake in Ingosstrakh, they said.
Representatives for Basic Element and Alfa declined to comment.