By Sally Bakewell and Stephen Morris Bloomberg News
LONDON - Lending to Russian companies reached a crescendo last year, with international banks pledging $31 billion to OAO Rosneft to buy TNK-BP. As sanctions are tightened against the nation, however, even the smallest deals have dried up.
No Russian companies received loans in U.S. dollars, Swiss francs or euros last month, the first time this has happened in at least five years, according to data compiled by Bloomberg. Global banks fell away in the second quarter, with lending plunging 42 percent from a year earlier to $4.7 billion as the Ukraine conflict worsened after President Vladimir Putin annexed Crimea in March. That was the least for any quarter since 2012.
International lenders are weighing the political and financial consequences of doing business with Russian companies after the United States and European Union stepped up sanctions on the nation’s banking and energy industries because of the crisis in Ukraine. OAO VTB Bank’s plan to get a $1.5 billion loan led by Barclays PLC will probably be scrapped, lawyers said last week. Royal Bank of Scotland Group PLC and Citigroup Inc. said Aug. 1 they’re scaling back their dealings with the country.
“Russia is not likely to be a good place to do business for quite some time,” Philip Hanson, an associate fellow at the Chatham House research group in London, said by phone on Aug. 1. “We’re going to see continuing trouble that’s going to have its economic consequences particularly for international banks.”
Russian companies paid an average interest margin of 287 basis points, or 2.87 percentage points, more than benchmark rates for internationally syndicated loans in the second quarter, according to data compiled by Bloomberg. That compares with 194 basis points in the same period a year earlier.
The spread on loans for investment-grade western European companies dropped to an average of 66 basis points in April through June from 122 basis points a year earlier.
While Russian companies have obtained at least $600 billion in debt and equity financing from international capital markets since the country emerged from its 1998 default, EU sanctions announced last week ban five state-controlled lenders from selling new shares and bonds.
European banks may also steer clear of syndicated loans to the country to avoid potential penalties, even though such lending hasn’t been penalized, according to Jonathan Fisher, a London-based barrister specializing in financial services at Devereux Chambers.
Bank of America Corp. and Nomura Holding Inc.’s electronic- trading unit Instinet temporarily banned trading in Russian energy stocks Rosneft and OAO Novatek last month after the U.S. sanctioned the firms over Russia’s policy on Ukraine, four people with knowledge of the matter said.