Borrowing in Capital Markets

Annual Report 2013
Site map Русский

# Borrowing in Capital Markets

For Vnesheconombank, in view of the long-term tenors and huge amounts of resources required for financing major investment projects, the task of forming and replenishing an appropriate resource base becomes a defining factor for increasing the Bank’s lending and investment activities.

In the reported period, raising loans from foreign banks and borrowing through placement of debt securities in the domestic and foreign capital markets served as the major sources of funding required to accomplish the task.

In 2013, pursuing a soft monetary policy by major global banks allowed for maintaining profitability in the debt capital markets at a relatively low level. At the same time, starting from mid-2013 the costs of borrowing started to grow reflecting the intention to wind up the QE programs conducted by the Federal Reserve System (FRS).

In 2013, the liquidity situation in the domestic market remained tense enough. Alongside pressures resulting from the capital outflow from Russia, such a negative factor as the interbank credibility crisis related to revocation of banking licenses from a number of banks only exacerbated the liquidity challenges.

But despite a complicated situation in the capital markets, Vnesheconombank succeeded in implementing plans to attract funding for further developing its lending and investment activities.

In 2013, the Bank attracted mid- and long-term resources in the total amount that is equivalent to RUB 273.5 bn, with 178.5 bn (65.3%) being the funds raised as a result of placement of Vnesheconombank’s debt securities in the capital markets.

As at 01.01.2014, the overall amount of funds raised by Vnesheconombank for a term of no less than 1 year demonstrated a 54% increase on the similar indicator posted at the start of the period under review.

1. Indicators RUB, bn | 2. 01.01.2013 | 3. 01.01.2014
Amount of credits obtained from banks (maturity – over 1 year) | 256.6 | 342.7
Amount of resources raised through placement of Vnesheconombank’s debt securities, total including: | 271.2 | 470.7

- amount of Eurobonds issued

166.0

311.8

- amount of domestic ruble-denominated bonds

90.0

142.5

- amount of domestic foreign currency-denominated bonds

15.2

16.4

TOTAL amount of resources raised in capital markets | 527.8 | 813.4

Structure of funds borrowed in capital markets (by maturity), RUB bn

The amount of resources raised for a term exceeding 5 years rose by 13.4% as compared to the beginning of 2013 to run at RUB 454.3 bn as at 01.01.2014, while the amount of resources raised for a term from 3 to 5 years witnessed 10-time growth to reach RUB 236.4 bn as at the reporting date.

## Raising resources from foreign banks

The period under review saw the signing by Vnesheconombank of 16 individual and multilateral loan agreements with foreign banks to raise mid- and long-term funding to finance investment projects (“tied” resources) in the equivalent of USD 2.9 bn.

The resources from foreign banks are raised either at market rates or even at lower rates in the event of an appropriate coverage provision by export credit agencies.

In 2013, the hallmark agreements on extension to the Bank of major commercial credits included:

- 2 loan agreements with China Development Bank (China) in the amount of USD 1.2 bn (USD 400 mn, the tenor of 10 years and USD 800 mn, the tenor of 6 years) to finance a project for the construction of a multifunctional complex on the territory of OJSC Slava ( Second Watch Factory) and a project for the construction of the 3rd power generating unit at the Ekibastuz HPP-2 in Republic of Kazakhstan;
- a loan agreement with a number of foreign banks totaling USD 700 mn, the tenor - 5 years, to finance a project for the construction of Boguchansk aluminum plant.

In order to raise long-term ruble-denominated resources Vnesheconombank concluded an individual loan agreement with HSBC Bank Plc. (Great Britain) amounting to EUR 25.2 mn (with the extension of funds in the ruble equivalent), the tenor – 8 years, to finance an investment project implemented by LLC Kaluga Cement Plant. The insurance cover was provided by Eksport Kredit Fonden (Denmark).

## Raising resources with the use of securities market instruments

In the course of 2013, Vnesheconombank placed 4 bond issues both in the domestic and foreign markets.

Actually, the amount of placed euro- and dollar-denominated Eurobonds totaled EUR 1.5 bn and USD 2 bn, respectively. We recognize the placements were made at favorable enough rates, which obviously reflects the Bank’s borrowing credibility.

The total amount of bonds placed in the domestic market stood at RUB 52.5 bn.

1. Bond issue: amount, currency 2013 | 2. Date of bond placement | 3. Maturity | 4. Coupon rate (%) | 5. Raiting Fitch/S&P
Foreign market |  |  |  |
EUR 1000 mn | 21.02.2013 | 5 years | 3.035 | BBB/BBB
EUR 500 mn | 21.02.2013 | 10 years | 4.032 | BBB/BBB
USD 850 mn | 21.11.2013 | 5 years | 4.224 | BBB/BBB
USD 1150 mn | 21.11.2013 | 10 years | 5.942 | BBB/BBB
Domestic market |  |  |  |
RUB 20 bn | 19.07.2013 | 3 years (with a 2-year blackout period) | 7.65 | BBB/BBB+
RUB 10 bn | 03.10.2013 | 5 years | 8.1 | BBB/BBB+
RUB 7.5 bn | 03.12.2013 | 7 years | 8.35 | BBB/ –
RUB 15 bn | 26.12.2013 | 5 years | 8.4 | BBB/BBB+

In spite of the unstable market environment, the number of investor applications for Vnesheconombank’s 5-year and 10-year euro-denominated Eurobonds exceeded the offer by more than 3 and 2 times, respectively. As a matter of fact, Vnesheconombank became the 2nd Russian bond issuer coming right after OJSC Gazprom that placed euro-denominated debt securities in the European market.

Remarkably, the placement in November 2013 of dollar-denominated Eurobonds became the biggest, in terms of amounts, dollar Eurobond placement by a Russian financial institution since 2008. The investor demand exceeded the amount of placement by 3.6 times.

Also, in 2013 the Bank successfully refinanced earlier made domestic borrowings in the sum of USD 500 mn (the currency-denominated issue placed for a 3-year term in 2012 with a 1-year blackout period) and RUB 10 bn (the ruble-denominated issue in the total amount of RUB 15 bn placed in 2010 for a 10-year term with a 3-year blackout period).

## Raising Funds from International Financial Institutions

At the end of 2013, the Bank concluded an agreement with Nordic Investment Bank on opening a EUR 50 mn credit facility (tenor-10 years) to finance projects implemented mainly in the North-West of Russia.

НАВЕРХ