VTB purchased the largest debt asset of the EBRD in Russia

VTB bought out a loan from the EBRD issued for the Western high-speed diameter - a high-speed highway in St. Petersburg. The EBRD has withdrawn from its largest debt position in Russia and continues to reduce its portfolio due to sanctions.
Origin source
VTB bought out the rights of the European Bank for Reconstruction and Development (EBRD) for a loan issued in 2012 for the construction of the central section of the Western High Speed ​​Diameter (WHSD) in St. Petersburg, a source in the government's financial and economic block told RBC and confirmed VTB Capital and the representative of Russia on the EBRD's board of directors. The central part of the WHSD with a length of about 12 km was opened in December 2016, after which the toll highway was fully operational.

"This is a mutually beneficial deal for the EBRD and Russia," said Russian representative to the EBRD's board of directors Denis Morozov. "This is an excellent asset, the largest and one of the best in the Russian debt portfolio of the EBRD, it is secured by future cash flows from the project, which has already been commissioned," he said.

In 2014, the EBRD (Russia is a shareholder of the bank with a share of 4.1%) stopped financing new projects in the country, citing EU sanctions. Since then, the EBRD has been shrinking its Russian assets (its Russian portfolio has jammed from € 10bn at a peak to € 2.6bn), and Moscow predicts a bank "going into oblivion", because before confrontation with the West, Russia was the main region for the EBRD.

The largest debt position

The EBRD loan of € 194 million was provided to the consortium "Northern Capital Highway" (MCC) in 2012 for a period of 12 years. The central section of the WHSD was technically the most difficult construction site, and the consortium attracted syndicated financing for 60 billion rubles. from VTB Capital, Gazprombank (they are the main shareholders of the MCC), Vnesheconombank, the Eurasian Development Bank and the EBRD. The latter undertook to participate in financing up to € 200 million.

This loan before its sale was the largest debt position in the Russian portfolio of the EBRD - 18% in the loan portfolio. The total portfolio of the EBRD's operating assets in Russia (debt and equity financing) is now estimated at € 2.66 billion, according to information on the bank's website (after the sale of the WHSD loan, the volume will decrease). The representative of the EBRD assures that the EBRD "will continue to implement (remaining) Russian projects, as stipulated by the initial conditions."

The press service of VTB confirmed that VTB Capital bought out a loan from the EBRD for the WHSD central section, but refused to disclose details of the transaction. "The possibility of such transactions is provided for by the credit documentation of the project, and such transactions are standard in the secondary market for syndicated loans," VTB said. According to a source from RBC, the EBRD sold the asset with a "small premium" for the bank. But the transaction is also profitable for VTB - "according to IRR (internal rate of return - RBC), the yield there is very good," the interlocutor of RBC said. "VTB Capital" and the EBRD do not disclose the interest rate on the loan.

Cost-effective project

The project of the Western High-Speed ​​Diameter is undoubtedly profitable, so VTB entered into it clearly without loss, believes Maxim Khudalov, Senior Director of Corporate Ratings of ACRA. "If it were not for political necessity, it is unlikely that the EBRD would sell this asset - it is now difficult to find a good borrower, and given that the concession is old, the loan was clearly betting several times higher than the current one," the expert explains.

Participants in the transaction do not say who initiated it. "Due to confidentiality provisions in the agreement, we can not comment on the details of the transaction," the EBRD representative said.

The Borrower - LLC "Magistral of the Northern Capital" (50% owned by VTB, 41.5% by Gazprombank and another 8.5% by Cyprus Blognot) - within the framework of the agreement on public-private partnership with St. Petersburg received the right to operate the whole highway in concession for 30 years, until 2042. The total cost of the project was estimated at 212.7 billion rubles. The asset was put into operation in 2016, it is expected that the concessionaire for this site should collect 9-10 billion rubles a year. for 30 years, says Khudalov. "The cherry on the cake is the fact that if there is a shortage of funds, St. Petersburg pays them, and its concession obligations are considered reliable," he explains.

Debt load on the project is now less than 150 billion rubles. According to Khudalov, no one expects shocks in the state, and the loan will be serviced in a timely manner and will not cause problems in terms of repayment. "At the moment, the WHSD project is one of the" flagship "and the largest Russian projects, that's why VTB is a quality asset," agrees Igor Smirnov, junior director of corporate ratings "Expert RA".

How the EBRD Leaves Russia

After the EBRD's actual accession to European sanctions, it sold MDM Bank (4.8%) and Uraltransbank (25%) in 2015, 9.2% in TransContainer in the spring of 2016, 33% in the summer of that year retailer "Healthy People". In November 2017, the structure of the gold mining company Vysochaishy bought out 5.26% of its shares from the EBRD. In December 2017, the EBRD implemented a put option on the reverse sale of shares of the Russian producer of equipment for oil production Borets International, without disclosing the terms of the transaction. Finally, on January 30, Sovcombank bought out the EBRD's stake (11%) in RosEvroBank.

In January, the EBRD also lost its stake in Promsvyazbank after the Central Bank, in the framework of the bank's reorganization, decided to reduce the authorized capital of the bank to 1 ruble, which means dilution of the shares of current shareholders, including the EBRD's stake (11.75%). Currently, the EBRD is negotiating the sale of its shareholding in SDM Bank (15%) to the structures of Expobank Igor Kim, Reuters reported in mid-January, citing sources. In addition, the Russian investments of the EBRD are declining, due to the fact that borrowers return loans to the bank when the maturity is appropriate, and the EBRD can not participate in their refinancing because of the ban on new operations in the country.

In May 2017, the Minister of Economic Development Maxim Oreshkin (he is Russia's administrator at the EBRD) criticized the EBRD for creating "an extremely dangerous precedent in international financial relations", as the bank limited the rights of one of its participants "without taking into account the statutory documents." In December 2017 Oreshkin said that the EBRD is "in a very difficult situation" - "incomes are lost, expenses are rising". If the bank does not fully return to the Russian market, "he, of course, will have to go into oblivion at some point," the minister suggested.