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By Sandrine Bradley
LONDON, June 18 (LPC) - Russian steel company NLMK is in the market for a US$500m-$750m revolving credit facility that will provide extra liquidity, bankers said.
ING is coordinating the four-year facility, which will pay under 200bp over Libor, the bankers said.
Bankers are describing the RCF as a back up facility for the company in times of uncertainty, but not an emergency Covid-19 loan.
“It is not an emergency facility. I think they just got cautious, it’s like a war chest. Their income stream is usually very predictable but with Covid-19 things are less certain. It’s about having a liquidity cushion just in case,” said one banker.
The extra liquidity also helps protect against a ratings downgrade, he said.
NLMK did not immediately reply to a request for comment.
In January, NLMK amended an existing €250m loan, linking the pricing of the facility to the company’s sustainability performance.
The new loan also has the option to link pricing to ESG targets.
“One of the options of the new NLMK deal will be to include an ESG element into it at a later date after closing,” the banker said.
Unlike in Western Europe, RCFs are not a big feature among Russian borrowers. This is mainly because they are not profitable for lenders as they use up country limits while only the commitment fee, usually 30% of the margin, is guaranteed.
However, a mixture of pressure from the borrower and pent up liquidity in the market has enabled NLMK to build appetite for the deal.
“It’s about the timing. There is a lot of bank liquidity and not enough demand, and lenders simply weren’t pushy enough to say no,” said a second banker.
There may be more RCFs for Russian borrowers in the coming months.
“There will be someone else looking for an RCF, although the number of requests will depend on how the market changes,” said a third banker.
“If other countries begin to unlock and demand for commodities begins to rise again then the need for these facilities will fall away as revenues become more predictable.” (Editing by Christopher Mangham)