Strong unsanctioned Russian companies and international banks are in active discussions around what financings can feasibly be agreed, as a resolution to the conflict between Russia and Ukraine remains uncertain.

The list of blue-chip and quasi-blue chip Russian firms in talks with banks over potential funding include the world’s largest nickel and palladium producer Norilsk Nickel (>> GMK Noril'skiy nikel' OAO), metals and mining group Metalloinvest, Russia’s largest independent oil producer Lukoil (>> Neftyanaya kompaniya LUKOIL OAO), potash business Uralkali (>> Uralkaliy OAO) and fertiliser businesses Uralchem and Eurochem, several bankers said.

“There are lots of market sounding going on from borrowers trying to understand who can lend and on what terms and with what structures. Everyone is in play – they all want to come to the market again,” one of the bankers said.

If the loans do emerge they will be smaller and more costly than previous deals agreed before Western sanctions banning major Russian firms from access to European and US capital were introduced.

“In terms of size we wouldn’t recommend even frequent borrowers to ask for more than U.S. $300m–$400m (195-260 million pounds) initially and then look to maybe increase it once that has been raised. Pricing will definitely be more expensive,” a second banker said.

Unlike the tenors on recent loans for Russian banks, which have shrunk to one year, maturities for corporate deals are likely to remain at around five years, with a two-year grace period before amortisation begins.

“I think two or three deals coming to the market in the second quarter is feasible as long as nothing gets worse,” a third banker said. “Many of these companies are doing perfectly well, nothing is really affecting their businesses; they just need help getting hard cash.”

Few banks will admit to being absolutely closed to Russian business, but the list of banks that might realistically participate in these deals remains small. They predominately comprise the European banks that have large Russian franchises, such as UniCredit, ING, Rosbank and Nordea.

However, even this list has shrunk, with both Raiffeisen Bank International and Societe Generale announcing plans this month to cut exposure to Russia.

KEEP TALKING

With much uncertainty around how much lending can actually be achieved, most of the discussions over new loans do not involve a formal request for proposals to banks, which would be the normal process for a company requesting a loan.

“Since the beginning of the crisis there have been very few formal RFPs, all deals are being discussed on the telephone, especially the risky ones. Why would you send out an RFP on a deal which might not happen, this would not reflect well on the company,” the second banker said.

Some firms, such as Metalloinvest, are maintaining dialogue with their relationship banks as part of regular market-sounding exercises to keep them updated on what is available to them.

“[Metalloinvest] has no plans to take on further debt. We have a comfortable loan maturity schedule. At the same time, like any other global company, we constantly assess opportunities in the debt market,” a Metalloinvest spokesperson said.

Equally, large Russian corporates are not yet desperate for cash. The wall of Russian corporate maturities is relatively small and manageable in 2015 with most bankers comfortable that repayments, when they arise, will not be a problem.

BIG HURDLE

One potential hurdle to new loans is that credit risk insurance (CRI) is now no longer available.

Most pre-export deals have traditionally used credit risk insurance to mitigate against the risks of doing deals in countries such as Ukraine, Russia and Turkey.

“The hard part is that the insurance market is completely closed to these deals and few will look at pre-export finance without insurance,” a fourth banker said.

However, other bankers argue that CRI is only used by banks to increase the country limits available to do deals in Russia at any one particular time, and with exposure to Russia significantly reduced over the last year country limits have increased, leaving little need for CRI.

“We absolutely don’t need to use it, there is no pressure on our country limits at the moment,” the second banker said. “I think deals will definitely happen as these companies will have no problem servicing debt at the moment. It is all about their investment and capex programmes, they need to keep on investing – they can’t postpone this forever.”

Uralkali declined to comment, Norilsk Nickel, Eurochem, Uralchem and Lukoil did not respond to requests for comment.

(Editing by Christopher Mangham)

By Sandrine Bradley