It is almost a month since potash company Uralkali brought its $530m loan — the first Russian borrower to access the international market in 2015. At the time, some bankers heralded the deal as signalling a momentous shift foreign bank attitudes to Russia. Other borrowers were expected to follow soon.
Yet while bankers say that the potential pipeline of Russian loans continues to build, little progress has been made since in getting any of them to sign.
Price discovery is one concern for whoever leads the way, say bankers, despite Uralkali having come roughly in line with the general expectation for Russian loans — twice what they paid last year.
But some believe borrowers are concerned that having only three or four banks on the deal will look bad.
Unless a full complement of relationship banks are available then they would rather hold off from international deals, with their greater visibility, until domestic financing has been exhausted.
This attitude misses the point that getting a Russian loan of any size or shape done in the international market at the moment is nothing to be sniffed at. No-one is going to look down on a small deal for a Russian company — even one that would normally borrow in size.
The environment for Russian deals at the moment is purely a reflection of broader economic conditions and politics, rather than the credit of the borrower itself. There is wide acceptance that the market is not officially “open”.
Bankers are only too aware that the success of Uralkali could have been an exception to prove the rule, rather than a benchmark against which other achievements must be measured.
In other words, there could hardly be less snobbery about the size, terms and banking book that Russian borrowers can command.
Against this, borrowers may hope that waiting it out will allow international banks to free up their country limits to Russia, as existing loans amortise.
But in that case, why not just do what you can now — however small — and include an accordion feature in the deal so you can add other banks later?
This is exactly what Uralkali did and it puts them at the front of banks’ minds if they missed out the first time. Bankers starved of Russian business can have no qualms or complaints about agreeing to such an arrangement.
All that waiting does is add to the risk that a number of Russian borrowers are going to try to hit the market at the same time — when they finally concede that the international market is worth a try. That will increase the competition for money and raise the problem of spacing out the pipeline. It’s clear that the same core group of banks is likely to be on every deal that makes it to market, making it all the more important to spread out competing supply.
There are selfish reasons then why Russian borrowers should want to beat the herd. But the bigger picture is that a steady flow of loans will grease the wheels of the market better than letting deals pile up while talks grow cold.
Someone needs to take the plunge and face their fear. At the end of this year, borrowers who got deals done, not borrowers who “saved face”, will win plaudits.