Natalia Romanova, Vera Kuznetsova
Russian companies queuing up for federal loans
The funds earmarked by the Government for Russian companies and banks to repay their foreign debts will hardly be enough for all those wishing to use them. By now, Vnesheconombank (VEB) which, by the Government's decision, will help borrowers repay their debts, has received applications for a total amount exceeding the declared limit of $50 billion, said Vladimir Dmitriyev, VEB's head, on October 13. According to him, the Government is not planning to increase this amount, despite increased demand for funds. A special meeting of VEB's supervisory board, held on October 13, endorsed the criteria to be used in granting loans to Russian companies.
Obviously, major state-run companies and banks will be given priority, and Vneshtorgbank (VTB) will be the first bank to receive federal support. It has already asked VEB to grant it a loan of $2.4 billion by year's end. Next year, VTB will need another $9 billion to repay its foreign debts, and will likely borrow the largest portion of this sum from VEB if the global markets are not normalised by that time. Thus, the Government may again help state companies in future. The question that remains is how much money will be left for private companies to repay their foreign debts.
In late September, Prime Minister Vladimir Putin said that the Central Bank would place a deposit of $50 billion into VEB. The Prime Minister promised that "any Russian bank or company will be able to turn to VEB for a loan to repay its foreign debt if the foreign loan was taken before September 25, 2008". On October 13, it became clear that VEB's loans were not meant for any company. After the special meeting of VEB's supervisory board, Mr Putin set forth the main criteria for the receipt of such loans: "First, the borrower must conduct its main activities in Russia's non-financial sectors. Second, this activity must be of major importance to the regional economy or to strategic sectors. And third, we must refinance only the loans attracted to implement investment projects or to acquire assets in Russia," Mr Putin said.
Mr Putin did not fail to mention the social responsibility of business circles and their partnership with the state. According to the Prime Minister, the Government should give priority to those companies that will share risks with the state by co-financing [projects] and that will not leave their employees in a sink-or-swim situation after "the loss of assets". In conclusion, the Prime Minister said that the Government would examine additional amendments to the budget as early as this week. Time is money, he said.
VEB has already received applications for an amount exceeding $50 billion. Vladimir Dmitriyev did not name all the companies asking for loans, but said that they included 35 corporate borrowers and about 20 banks. On October 13, several companies, i.e., Rusal, Gazprom Neft, VimpelCom, Bank Soyuz, and Sitronics, told the Interfax agency that they had applied to VEB for loans. Gazprom, Rosneft, TNK-BP, and SUEK refused to comment on this issue. Aeroflot, Sberbank and Surgutneftegaz said they did not need to refinance their companies through VEB.
In early October, Russia's largest oil and gas producers - Gazprom, Rosneft, TNK-BP, and LUKoil - requested loans from the Government to repay their foreign debts, but no concrete amounts were named then.
It was expected that $50 billion would be enough to repay all Russian companies' foreign debts due by at year's end. VEB promised to examine applications within no longer than 18 days, while Mr Dmitriyev spoke about refinancing quotas. A borrower can get between $100 million and $2.5 billion. The maximum amount is impressive, especially considering that the monsters of the Russian market are now the main clients of Western creditors. When explaining the reason for setting the quota, VEB's head cited the bank's memorandum on financial policy, which
provides a quota for one borrower or a group of allied borrowers that accounts for 25% of the bank's capital. "Proceeding from the declared increase in VEB's capital of 75 billion roubles (its capital amounts to 180 billion roubles today), we arrive at the figure of $2.5 billion," Mr Dmitriyev explained.
The Vremya Novostei daily already wrote that, by assessments of Standard & Poor's (S&P) rating agency, Russian companies will have to pay $45 billion to foreign creditors by the end of this year. According to the Central Bank's data, published on October 13, banks will have to pay $18.5 billion, and companies another $29 billion in the fourth quarter of this year. It is not clear, however, why the applications exceeded $50 billion. Perhaps some borrowers hastened to apply to VEB, thinking that their creditors may demand an earlier debt repayment.
According to the Central Bank, the banks will need $13.6 billion for their foreign debt repayment in the first quarter of 2009, $12.9 billion in the second, $8.3 billion in the third, and $13.2 billion in the fourth quarter. Companies in other sectors are planning to pay $16.7 billion in the first quarter of next year, $22.4 billion in the second, $9.9 billion in the third, and $18.7 billion in the fourth quarter.
Despite a great number of applications, VEB is not yet planning to increase expenses on the companies' support. "It would be wrong to say that the Government will fully take on the refinancing burden, which totals nearly $120 billion," said Mr Dmitriyev on October 13.
Earlier, Alexei Ulyukayev, first deputy chairman of the Central Bank, said that VEB would fix its minimum annual interest at LIBOR+5%. According to him, this rather large interest rate should force borrowers to look for their own resources. Nevertheless, such terms seem to suit VTB, Russia's second largest state bank. Moreover, it is quite possible that VEB will help VTB's refinancing next year, as well.
Still, the amount of VEB's assistance to Russian companies and banks is limited not only by a quota for one borrower, but also by the share of government participation in refinancing the external debt: VEB may grant a loan amounting to no more than 75% of the borrower's debt, and the borrower will have to repay the remaining 25% from other sources (exceptions from this rule must be sanctioned by VEB's supervisory board). In addition, VEB will receive the right of direct debit loan repayment. Finally, the borrower will have to coordinate all other borrowings, as well as possible sales of its assets, with VEB.
Nikolai Tsekhomsky, VTB's CFO and member of the board, said that a larger portion of the bank's debts must be refinanced in the second half of the year. "According to investors' forecasts, debt markets may open next year only for top-class borrowers from Russia, while capital markets give less grounds for optimism," said Andrei Kostin, VTB president and CEO. Nevertheless, the bank intends to secure itself against risks, and thus has already submitted all information to VEB on its due payments in 2009, which total $9 billion. Therefore, if the situation in the external markets does not improve, the Government will have to earmark additional funds for Russian borrowers of foreign funds next year, as well. The Government is not likely to allow a foreign debt default to happen, at least among state-run companies.
"VTB's request for VEB's support may be regarded as a natural result of the current crisis," said Polina Lazich, an analyst with the AK BARS Finance investment company. "It is clear that the bank cannot attract money from the market now. It is good that VTB can borrow money from VEB, because otherwise it would have found itself in an unpleasant situation. It has no free funds to repay its debts."
As is known, the Government has suggested that VTB, together with Gazprombank and Sberbank, actively credit Russian banks on the interbank market. "This implies higher risks for our bank," Andrei Kostin said. "Under normal conditions, if we have not set the task of boosting other banks' liquidity, we would not do that, having our own interests in mind," he said. In supporting the interbank market, VTB may incur financial losses. Apart from this, the bank will probably have to increase reserves to compensate for possible losses on loans. "The worsening quality of assets is also of great danger to Russian banks today. The reason is not the banks' poor performance but the crisis of liquidity which causes tension in our clients' work when they cannot repay loans on time. This concerns both the constituent entities of the Federation and rather prosperous companies," Mr Kostin added. Under the current conditions, VEB's money will help VTB to eliminate tension, at least in one section of work.
Russian President Dmitry Medvedev has signed the federal law that gives the Central Bank the right to grant unsecured loans to Russian lending institutions with a rating not below the established level for a term of no longer than six months. Alexei Ulyukayev, first deputy chairman of the Central Bank, said on October 13 that the Central Bank would not demand international agencies' ratings from the lending organisations to be supported in connection with the global financial crisis. "We think we can make concrete decisions with the help of agencies whose ratings will be recognized, and these may be Russian rating agencies," he said. Now, the Central Bank is issuing loans to 28 Russian banks, but when the law is adopted, their number will increase to 120 credit organizations. Mr Ulyukayev expressed hope that adopted measures will help give loans to all 1,200 banks, including regional banks. As early as October 14, the Central Bank may endorse regulatory acts on the crediting mechanism.
