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Exclusive western banks may steer clear of russian loans for a year


* Market stands to lose more than $45 billion in business* Deals in process now not likely to complete* Hiatus could last at least a year* Russia courts cautious Asia, banks with franchisesBy Sandrine BradleyLONDON, May 19 Most Western banks are shunning Russia's syndicated loan market as a result of the Ukraine crisis and could stay away for a year or more, despite the potential loss of more than $45 billion in business. Fears over the impact of current and threatened future sanctions, including on the suppliers and balance sheets of the would-be borrowers, spell the end of hopes deals in process before the crisis hit may still complete, banking sources said. These include a $1 billion deal for petrochemicals company Sibur, and $500 million each in refinancing for potash producer Uralkali and uranium enrichment firm Tenex."Nothing has moved, deal activity has frozen. I would guess that the best-case scenario is a 12-month hiatus," a London-based loan banker said. Russian companies have agreed just under $5 billion of loans so far this year after raising nearly $50 billion in 2013; the country consistently ranks as the sixth or seventh-largest market in the EMEA region, Thomson Reuters LPC data shows. Most of the credit approvals that had been agreed by lenders before the Ukraine crisis have now expired on deals that have not completed. Bankers say that it will take some time before credit committees become comfortable with Russian risk again."I think it is unlikely that any Russian deals will get done in the short term. The message from above is manage down Russian exposure when you can, not take on more," a second banker said.

Some borrowers, including Sibur, have effectively stopped their deals by refusing to add clauses in loan documentation, insisted on by Western lenders, that stipulate the repayment of loans if more sanctions are imposed. The United States and Europe have imposed sanctions on some individuals and companies over Moscow's annexation of Crimea in March and threatened broader sectoral sanctions if Russia disrupts Ukrainian presidential elections planned for Sunday. Moscow has turned to Asia to fill the gap, with limited signs of success, and also sought bilateral loans, including from Western banks with Russian franchises which may be more prepared to bear short term risks to preserve a long term relationship. BIG HOLE Russia's dollar-based syndicated loan market was expected to be a major source of revenue for banks in 2014. Russian loans were profitable and paid interest margins of 150 basis points over Libor before the crisis.

Banks were already struggling to hit revenue targets as the provision of cut-price revolving credit loans for blue chip Western companies becomes increasingly commoditised."The market (for Russia) is closed. I would speculate that a return to Russian lending will be a 2015 event. Even if the situation stabilises, which won't happen in the short term, it will still take banks months to get comfortable again with Russian risk," a third banker said. The hiatus raises questions about how banks will fill the lending void."How are we going to cover this hole? We don't know, we are still considering that," said the third banker. Other emerging markets could stand to benefit, but there has been no evidence of an increased deal flow there as yet.

ASIA, FRANCHISES? Russian borrowers' hopes of raising funding from banks in Asia also look likely to be dashed by concerns about sanctions. Gas giant Gazprom plans to update investors on the company's financial performance and funding plan in Taiwan this week, only two weeks after it met other Asian investors to explore ways of raising new loans and bonds. The company is also trying to extend an existing $500 million loan that is due to mature in July. Taiwanese banks, usually Asia's most active investors, have already expressed reservations about joining Russian loans. "Our lending limits to Russian companies have been frozen," a senior loan banker from a major Taiwanese government-owned bank said."There is little chance that we can join a deal from Gazprom as the situation in Russia is too complicated," another banker at a Taiwanese commercial bank said. One option still open to Russian borrowers looking to raise capital is bilateral loans with a small group of Western banks that have bank franchises in Russia. Metals company Norilsk Nickel, which was trying to raise a $1 billion syndicated loan when the crisis hit, signed a five-year unsecured $200 million bilateral loan with ING on May 14. The company had already signed two five-year bilateral loans totalling $750 million with UniCredit and Raiffeisenbank in April. Both banks have Russian franchises. ING and Deutsche Bank are also still pushing for a $1 billion syndicated deal for steel company Evraz, according to bankers.

Hong kong works to keep islamic finance momentum as firms balk


Dec 11 Hong Kong's government is trying to maintain the territory's momentum toward becoming an Islamic finance centre, as other potential sukuk issuers show little enthusiasm. In September, Hong Kong made the first U.S. dollar-denominated sukuk issue by an AAA-rated government, a $1 billion deal that put it on the map in the global competition among banking centres to attract Islamic finance business. Since then, however, there have been few if any signs of other sukuk issuers emerging in Hong Kong - demonstrating that however hard governments try, they may struggle to develop Islamic finance sectors if a strong economic rationale is absent. Hong Kong is a top centre for conventional finance, serving China and many customers elsewhere in Asia. Because of its fiscal strength, its sovereign sukuk issue attracted a massive order book of $4.7 billion, including many investors from the Middle East. But that does not necessarily mean other borrowers in Hong Kong will choose to issue sukuk instead of conventional bonds, which tend to be more familiar and less complex, and therefore cheaper to structure and sell. And for regional borrowers which do want to use sukuk, it is not immediately clear why they should choose Hong Kong instead of Kuala Lumpur, which has the world's most active Islamic bond market, or the Gulf, where most big Islamic investors are based. In the past, several firms in Hong Kong have been linked to possible sukuk issuance, including the Airport Authority , metro operator MTR Corp and Hong Kong Mortgage Corp (HKMC). So far, there is no sign of these firms following the government's lead, however. The Airport Authority said through a spokesperson that it had no further updates on its funding plans or the subject of sukuk financing. MTR Corp declined an interview request, saying it had no funding plans.

HKMC considered sukuk when the government first started to promote the sector, but a preliminary study found it difficult to proceed since HKMC's assets are not sharia-compliant mortgages, said treasury manager Rita Yeh."Nevertheless, we will continue to monitor the market development and be open-minded on any favourable funding options for the Corporation."PAVING THE WAY

In a written response to Reuters questions, the Hong Kong Monetary Authority (HKMA) said September's sukuk sale had demonstrated that the territory's legal, regulatory and taxation framework could support domestic issuers, paving the way for public and private sector firms to come to market. In July 2013, Hong Kong amended its tax laws to provide a level playing field for some of the most common types of sukuk transactions - ijara, musharaka, mudaraba and wakala - and lawmakers passed a bill in March this year to allow the government to issue its own sukuk."Whether more government sukuk will be launched in the future will very much depend on the additional benefits of such future issuances from a market development perspective. We will continue to keep this under review," the HKMA said. For years, proponents of Islamic finance in Hong Kong have dreamed of making the territory a bridge to Chinese buyers of sukuk.

So far, however, there have been few issuers of yuan-denominated sukuk, and these have opted to tap the Malaysian market instead, via locally domiciled special purpose vehicles. They include Malaysia's state investor Khazanah Nasional , which made a three-year, 500 million yuan.