LONDON, March 20 (Reuters) - Western lenders are attempting to offload Russian loans on Europe’s secondary loan market to reduce exposure to the region as nervousness grows after Russia’s seizure of Crimea, banking sources said on Thursday.
They are looking to lower exposure on loans for Russian banks, as well as performing and non-performing corporate credits through portfolio sales or on a single name basis.
It comes as Russia’s annexation of Ukraine’s Crimea region brought about the biggest confrontation between Moscow and the West since the Cold War.
“Most banks are getting nervous now and the loan market is starting to see a flow of Russian names coming from banks at good prices. All [financial institution] deals use to be shown at par or above and it was very difficult to source the paper as no one wanted to sell. Now the loans are being shown everywhere and at levels below par,” a loan trader said.
Loans for Russian banks were quoted at 98.3 percent of face value on March 20 from 99.1 at the start of February, according to Thomson Reuters LPC data - the lowest level since the data began to be recorded in October 2010. The bid-ask spread, which widens as volatility increases, was at 0.6 on March 20 - the widest level since February 2013.
The loan sales are expected to attract significant attention from hedge funds and other players which rarely get a look at the paper, as it is not often traded. As a result loan prices are dropping on Russian loans across the board.
Some individual FI loans experienced bigger losses including loans in Russian bank Vnesheconombank (VEB), which is very exposed to Ukraine. VEB’s loans were quoted at around 99.5 on Thursday compared to par or above par a few weeks ago, where it usually trades.
“VEB is due to refinance its loans at the end of April. The paper is usually quoted at par or above but is now down half a point which is unusual seeing as it is due to repay at par in a matter of weeks,” the trader said.
Similarly, loans in VTB and Sberbank were also quoted lower at around 98.5 on Thursday. A few weeks ago both loans were trading around par. VTB is due to refinance in July and Sberbank in December.
Questions remain over how easy it will be to refinance FI loans in the loan market as banks appetite for the paper reduces.
Among the major Russian corporate borrowers, aluminium giant Rusal, which has been hit by weak aluminium prices and heavy net debt levels, felt the brunt of the volatility as loans plummeted to the low to mid-70 on Thursday compared to around 85 a few weeks ago.
Loans in Russian oil and gas companies have also been hit by volatility, among them several subsidiaries of Russian oil giant Gazprom which have fallen the most, according to Thomson Reuters LPC data.
Gazpromneft’s dollar revolver and Severneftegazprom’s dollar term loan both dropped around half a point since the beginning of February and were quoted at 98.1 and 97 respectively on March 20. Gazprom’s polyethylene production unit Novy Urengoy Gas & Chemical Complex saw its euro term loan drop by almost a point from February 1 to 98.6. (Editing by Christopher Mangham)