Russia emerging as haven from subprime 9 years after default
What a difference nine years makes.Banks from New York-based JPMorgan Chase to ABN Amro Holding NV in Amsterdam are providing more loans to Russian companies than ever as memories of the country’s $40 billion default in 1998 fade.
By Agencies |
LONDON: What a difference nine years makes. Banks from New York-based JPMorgan Chase to ABN Amro Holding NV in Amsterdam are providing more loans to Russian companies than ever as memories of the country’s $40 billion default in 1998 fade.
Aluminum monopoly United Co. Rusal and supermarket chain OOO Lenta led corporations that borrowed $29 billion in the past three months, 40% more than the same period a year ago, according to data compiled by Bloomberg. Outside Russia, at least 50 companies from leveraged buyout firm Kohlberg Kravis Roberts to Tyco Electronics, the biggest maker of electric connectors, cancelled more than $100 billion of deals.
“We’re going to have to think of a new term for emerging markets,” said Roland Nash, chief strategist at Renaissance Capital in Moscow, which has helped clients raise more than $15 billion since 1995. “Russia really is in the current credit crunch a bit of a safe haven. All the problems are emanating out of the developed world. That’s a real turnaround.”
Russian companies are raising money at the most favourable terms ever, thanks to rising prices for oil, natural gas and metals. Investors seeking assets untouched by record US mortgage delinquencies are lining up to lend in the world’s 10th-largest economy, which grew 6.7%in 2006. Central bank deputy chairman Alexei Ulyukayev said last week the economy may expand as much as 7.5% this year.
Loans Doubled
Corporate loans outstanding in Russia doubled to $256 billion at the end of last year from 2004, according to data compiled by Newport Beach, California-based Pacific Investment Management and securities firm Dresdner Kleinwort in London. Both are units of Munich-based Allianz SE.
Moscow-based Rusal, the world’s largest aluminum producer, is paying interest of 70 basis points more than the London interbank offered rate on $2 billion of seven-year loans it obtained last month. That compares with 110 basis points, or 1.10 percentage point, a year ago for five-year debt, Bloomberg data show.
Bankers for Lenta in St Petersburg, Russia’s third-largest food retailer, let the company borrow 200 million euros ($275 million) for three years last month at a spread of 140 basis points over Libor, down from 280 basis points on 90 million euros of similar-maturity debt last year, ABN Amro said.
OAO GMK Norilsk Nickel, the world’s largest producer of the metal, borrowed $6 billion last week to buy Toronto-based LionOre Mining International at a margin of 52.5 basis points for the first three years, Bloomberg data show.
Safest Paper
The steel company’s financing illustrates the challenge that hundreds of borrowers in developed markets face. Investors are avoiding most kinds of non-government debt on concern that the worst US housing market in 16 years will slow economic growth. More than 50 companies cancelled or overhauled borrowing plans since June as investors demanded higher risk premiums, data compiled by Bloomberg show. Spreads on loans for US companies with ratings of about BBB have widened 3 basis points to an average 54.5 basis points since June, according to the data. Debt rated BBB- and above by Standard & Poor’s and Baa3 by Moody’s Investment Service are investment grade.
‘Beaten Up’
“In this environment, everything is getting beaten up, and Russia has been a great way to play the volatility,” said Jeff Grills, who manages $8 billion as co-head of emerging-market debt at JPMorgan Asset Management in New York. “Russia looks very attractive in terms of the fundamentals and their ability to pay.” JPMorgan Asset Management increased its allocation to the country this year, buying bonds from Gazprom last month, Grills said. The firm is a unit of JPMorgan Chase, the biggest US loan arranger.
Aluminum monopoly United Co. Rusal and supermarket chain OOO Lenta led corporations that borrowed $29 billion in the past three months, 40% more than the same period a year ago, according to data compiled by Bloomberg. Outside Russia, at least 50 companies from leveraged buyout firm Kohlberg Kravis Roberts to Tyco Electronics, the biggest maker of electric connectors, cancelled more than $100 billion of deals.
“We’re going to have to think of a new term for emerging markets,” said Roland Nash, chief strategist at Renaissance Capital in Moscow, which has helped clients raise more than $15 billion since 1995. “Russia really is in the current credit crunch a bit of a safe haven. All the problems are emanating out of the developed world. That’s a real turnaround.”
Russian companies are raising money at the most favourable terms ever, thanks to rising prices for oil, natural gas and metals. Investors seeking assets untouched by record US mortgage delinquencies are lining up to lend in the world’s 10th-largest economy, which grew 6.7%in 2006. Central bank deputy chairman Alexei Ulyukayev said last week the economy may expand as much as 7.5% this year.
Loans Doubled
Corporate loans outstanding in Russia doubled to $256 billion at the end of last year from 2004, according to data compiled by Newport Beach, California-based Pacific Investment Management and securities firm Dresdner Kleinwort in London. Both are units of Munich-based Allianz SE.
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Moscow-based Rusal, the world’s largest aluminum producer, is paying interest of 70 basis points more than the London interbank offered rate on $2 billion of seven-year loans it obtained last month. That compares with 110 basis points, or 1.10 percentage point, a year ago for five-year debt, Bloomberg data show.
Bankers for Lenta in St Petersburg, Russia’s third-largest food retailer, let the company borrow 200 million euros ($275 million) for three years last month at a spread of 140 basis points over Libor, down from 280 basis points on 90 million euros of similar-maturity debt last year, ABN Amro said.
OAO GMK Norilsk Nickel, the world’s largest producer of the metal, borrowed $6 billion last week to buy Toronto-based LionOre Mining International at a margin of 52.5 basis points for the first three years, Bloomberg data show.
Safest Paper
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US Steel, the Pittsburgh-based steel company, by contrast, was charged a spread of 125 basis points in August on three-year debt to purchase Hamilton, Ontario-based Stelco. The cost for America’s biggest steel maker doubled from 62.5 basis points in June.The steel company’s financing illustrates the challenge that hundreds of borrowers in developed markets face. Investors are avoiding most kinds of non-government debt on concern that the worst US housing market in 16 years will slow economic growth. More than 50 companies cancelled or overhauled borrowing plans since June as investors demanded higher risk premiums, data compiled by Bloomberg show. Spreads on loans for US companies with ratings of about BBB have widened 3 basis points to an average 54.5 basis points since June, according to the data. Debt rated BBB- and above by Standard & Poor’s and Baa3 by Moody’s Investment Service are investment grade.
‘Beaten Up’
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Tyco Electronics, based in Berwyn, Pennsylvania, abandoned plans in July to borrow $1.5 billion because investors wouldn’t provide the credit. The company instead extended the maturity of a short-term loan from Bank of America in Charlotte, North Carolina, by one year, according to an August 31 filing with the US Securities and Exchange Commission. Sheri Woodruff, a spokeswoman for Tyco, didn’t return a telephone call seeking comment. New York-based KKR’s bankers last month called off plans to syndicate £6 billion ($12.1 billion) of debt to investors that the buyout firm used to finance the purchase of UK pharmacy chain Alliance Boots, two people with direct knowledge of the deal said at the time.“In this environment, everything is getting beaten up, and Russia has been a great way to play the volatility,” said Jeff Grills, who manages $8 billion as co-head of emerging-market debt at JPMorgan Asset Management in New York. “Russia looks very attractive in terms of the fundamentals and their ability to pay.” JPMorgan Asset Management increased its allocation to the country this year, buying bonds from Gazprom last month, Grills said. The firm is a unit of JPMorgan Chase, the biggest US loan arranger.
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