International banks led by BNP Paribas SA are paying more in Russia since 2008 & Russian firms borrowed 10.1 billion U.S. dollars this month

International banks led by BNP Paribas SA are paying more in Russia since 2008, making companies in the world's largest economy energy exporting more profitable as lending rates fall in Europe.

Russian firms borrowed 10.1 billion U.S. dollars this month, bringing the total this year to 39.6 billion, more than double the amount in 2009. OAO Sberbank provided 2 billion U.S. dollars last week in the largest syndicated loan for a Russian bank, paying annual interest at 150 basis points, or 1.5 percentage points over interbank offered rate in London for three years. The rate compares with margins of at least 250 basis points for loans of three years provided for lenders and OAO Gazprombank Vnesheconombank state this year.

Banks outside Russia are looking towards the east and improving business units benefit loan rates in western Europe to a low of 12.5 basis points above the benchmark overnight rates for Nestle SA, Vevey food maker based in Switzerland. Lenders are increasing credit to Russia as a 21 percent increase in oil prices over the past four months increases confidence in the economic recovery.

"The market is open for top quality Russian names," said Mark Waters, the London-based head of syndication of loans to energy companies and commodities at BNP Paribas. The Paris-based bank Credit Agricole CIB surpassed as the largest lender in Russia and the former Soviet Union this year. "We're still seeing price levels that are attractive to lenders in Russia, he said.

Syndicated loans to Russian companies rose 140 percent from 16.7 billion U.S. dollars last year. The market exceeded the equivalent of $ 28 million raised from domestic bonds, a turnaround from last year, when the local debt was the largest market.

Interest Reduction

"Issuers are the addition of loans to balance and optimize the demand of investors," said Herbert Moos, vice president of VTB Group, the second largest lender in Russia, by email.

Banks compete to lend in Russia have reduced the average interest margin of 19 percent to 350 basis points from 432 last year. The decline in Western Europe has been most pronounced in 37 percent, taking the average of the loans to borrowers with investment grade to 109.3 basis points, the lowest since 2007, according to the data.

The gains in Russian government bonds in 2020 pushed the dollar to yield 7 basis points lower than 5,086 per cent on 17 December. The country's ruble notes maturing in August 2016 were little changed, leaving the yield 7.58 percent.

Extra Performance

The extra yield investors demand above U.S. Treasuries to support the Russian debt, rated Baa1 by Moody's Investors Service, climbed 8 basis points to 209, according to JPMorgan Chase & Co. 's EMBI + index. The difference compared to 147 for Mexico's debt with similar qualifications and 188 for Brazil, two steps that is rated below Baa3 by Moody's.

The yield of Russian bonds is 43 basis points below the average for emerging markets around the smallest difference since September 2009 and below a 15-month high of 105 in February, according to JPMorgan rates.

The cost of protecting Russian debt against default by five-year credit-default swaps was little changed at 142, below the peak of this year's 217, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

Swaps credit-default for Russia at a cost of 10 basis points more than the contracts in Turkey, classified as four levels lower than Ba2. Russia swaps cost as much as 40 basis points less on 20 April.

"Pipeline Deal

The ruble rose less than 0.1 percent to 30.6890 per dollar, bringing its weekly increase of 0.8 percent. non-deliverable, or opinions that provide guidance to the expectations of currency movements and interest rate differentials and allow companies to hedge against currency movements, show the ruble at 31.0600 per dollar in three months.

Borrowing costs in Russia are still higher than two years ago, when Sberbank, the country's largest lender, received a three-year loan interest payments by 85 basis points above Libor.


"There is good space for major Russian companies and banks to lower their funding costs as banks repay further loans to emerging markets," said Luis Costa, credit market strategist at Citigroup Inc emerging . in London. "Borrowers of Russia are back on the pipe rather than Latin American and Asian companies."

Sberbank may receive loans from the syndicated loan market next year and the Eurobond issue, "depending on market conditions," said Bella Zlatkis Deputy Director General told reporters in Moscow on 17 December. Sberbank loan was quoted at 98.75 per cent of its nominal value on December 17, according to the price of WestLB AG.

Rusal restructuring

United Co. Rusal, the world's largest aluminum producer, plans to start talks with banks early next year for $ 5 billion of new loans, including loans to refinance existing debt, Director-General Oleg Mukhamedshin said in an interview London on 1 December. The company, based in Moscow to renegotiate 17 billion U.S. dollars of loans to foreign lenders and Russian last year in the biggest restructuring of companies.

The banks reduced the interest paid on the Libor Rusal to 450 basis points in September from 550 in June and 700 in December 2009. The company expects to reduce borrowing costs again next year, Mukhamedshin said.

The increased indebtedness of Russia is in contrast to other emerging markets in Europe, Middle East and Africa, where the loans were reduced by 43 percent this year to 282 billion.

The Russian economy is recovering from a contraction of 7.9 percent last year, the country's worst recession since the Soviet Union collapsed two decades ago. The government expects growth of 3.8 percent in 2010 and 4.2 percent next year compared with the official growth forecast of around 1.4 percent in the Eurozone.

"We've seen a lot of banks return to Russia," said John Starling, a credit union director of HSBC Holdings Plc in London.