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Emerging Europe – Russia: Unsecured, untied and not a bond in sight

International banks recently put up an unsecured loan for a Russian borrower with a parent on the US sanctions list. Has the loan market for unsanctioned investment-grade Russian borrowers just got broader, deeper and potentially cheaper?

Vladimir Putin binoculars-R-600
Vladimir Putin looks to the US for mutual backslapping in the global media

A $500 million five-year unsecured loan to a Russian borrower with a parent on the US goods, services and technology sanctions list would have been laughed out of European bank credit committees six months ago. The deal closed in November.

Lead arranged by Intesa Sanpaolo, Natixis, Mizuho, UniCredit, VTB Bank, ING, Raiffeisenbank of Russia and Raiffeisen International for Soyuzneftegaz Vostok, an indirect but wholly owned subsidiary of US sanctioned Lukoil, the unsecured loan is the strongest signal to date that western bank appetite for Russian borrowers, particularly those with commodity-linked cash flows, is back.

The loan is not the first unsecured facility from international banks to a Russian commodities-linked borrower in 2016 – that accolade went to Norilsk Nickel on September 30 when it also raised a $500 million five-year unsecured loan from Commerzbank, HSBC, Mizuho, SMBC and UniCredit. But the Lukoil deal does come with the most risk of potential future sanctions fallout for lenders.

Although Lukoil is not the specific subject of EU sanctions and only the focus of US goods, services and technology sanctions rather than financial, since 2014, many international lenders, particularly those with a large asset base in the US, have steered clear of all Russian borrowers – sanctioned or unsanctioned – for fear of retroactive US legislation.