Russian Ministry of Economic Development and VEB.RF Sign Agreement on Extension of Subsidies to Project Financing Factory
The Russian Ministry of Economic Development and VEB.RF signed an agreement on extension of federal budget subsidies to the Project Financing Factory in the form of asset contributions by the Russian Federation to VEB.RF. The subsidy will cover VEB.RF’s costs related to the Factory’s credits and loans.
The document was signed by Ilya Torosov, Deputy Economic Development Minister of the Russian Federation, and Nikolay Tsekhomsky, VEB.RF’s First Deputy Chairman - Member of the Management Board.
The Project Financing Factory’s programme and the rules for extension of federal budget subsidies to the Factory were approved by the Resolution of the Russian Government in 2018.
VEB.RF acts as the Factory’s operator for investment projects support. The Factory mainly relies on syndicated lending with government support, which increases the availability of loan facilities, expands loan maturities and allocates risks among the participants.
“First of all, we see the following advantages of the Factory for the state: this new debt financing instrument will have a positive impact on the economic growth by bringing new projects to priority economy areas, the financial market infrastructure development, and will give efficient and systematic support to the real economy. Financial market participants and investors will benefit from a private equity major projects participation platform, risks decreased owing to additional participants in project financing. As for the lenders, they will see an increased availability of project financing, increased length and volume of loans, lower project financing costs. At that, the government, de facto, is covering the risks of macroeconomic environment changes,” Ilya Torosov said.
“Government subsidies are hedging interest rate risks. The Project Financing Factory Programme encourages mutually beneficial cooperation among commercial banks in arranging financing for capital-intensive projects. All rouble-denominated tranches, including tranches from the partner banks, are government subsidised for the entire length of the loan in respect of fluctuations in the key interest rate of Russia’s Central Bank ,” Nikolay Tsekhomsky said.
Russia provided SPFC PFF with a 294 billion roubles government guarantee to back the bond issues. VEB.RF implemented a unified information system to share data and monitor PFF’s projects. The PFF’s initial stage counts three investment projects with the total cost of more than 212 billion roubles. VEB.RF is reviewing 11 potential projects for the Factory with the overall cost of more than 800 billion roubles.
VEB.RF, Gazprombank, Sberbank, and Baikal Mining Company Sign Syndicated Loan Agreement to Develop Udokan Copper Deposit
VEB.RF, Gazprombank, and Sberbank signed with the Baikal Mining Company (BMC) a syndicated loan agreement to develop the Udokan copper deposit. BMC is a member of USM, a diversified international holding company founded by Alisher Usmanov who is also its principal shareholder.
“The deal is Russia’s largest project implemented using the Project Financing Factory mechanism with VEB.RF acting as the project operator. All rouble-denominated tranches, including tranches from the partner banks, are government subsidised for the entire length of the loan in respect of fluctuations in the key interest rate. To cover interest expenses at the investment stage and any expenses associated with the project cost overrun, VEB.RF provides the Factory’s special instrument, Tranche B, as an additional liquidity cushion,” VEB.RF’s First Deputy Chairman - Member of the Management Board Nikolay Tsekhomsky said.
The total project budget approximates to USD2.9 billion with USD1.79 billion to be raised as a loan from a syndicate of banks for the maximum term of twelve years. However, the shareholders’ own investments in financing the license acquisition, R&D, project design, and early construction works have exceeded USD870 million.
After becoming fully functional, the Udocan mining and smelting facility will create more than 2,000 new industrial jobs aside from allied sectors, and generate over RUB750 billion in additional tax proceeds to the budgets at all levels during the first 25 years of operation.
Acting as the arranger, financial advisor and a lender providing up to USD650 million, Gazprom also expects to raise external foreign financing. Other participants in the syndicate include Sberbank (up to USD650 million) and VEB.RF (up to USD490 million), with the latter exercising powers of the lending manager.
Valery Kazikayev, Chairman of BMC’s Board of Directors said: “It was our initial plan to use the project financing mechanism. We raise funds to ensure a full operation cycle: delivery of primary equipment for a mining and processing facility, a leaching plant, building and installation work including that related to the infrastructure construction, and delivery of ancillary equipment and transport.”
Construction on the industrial site has been underway since the first quarter of 2019. Delivery and installation of the primary equipment are scheduled to begin in the middle of 2019, whereas the Udokan mining and smelting facility is expected to become fully operational in 2022.
“Through the concerted efforts of the project lenders and initiators we were able to find an optimal investment solution and to structure financing so that to make a high credit quality deal. In particular, the Factory’s financial instruments allow to obtain a subsidised interest rate and thus to hedge the project company against any increases in the Bank of Russia’s key rate for the entire length of the loan,” Deputy Chairman of Gazprombank’s Management Board Alexey Belous said.
“This project is of strategic importance for both the industry and the national economy in general. Undoubtedly, it will considerably help to improve efficiency of the Russian mining industry, create new jobs and develop state-of-the-art infrastructure. We are glad to have been able to participate in this important project, which is unique for the Russian market and, together with our partners, to offer a tailored financial solution in the customer’s best interest,” Deputy Chairman of Sberbank’s Executive Board Anatoly Popov said.
Located in Zabaykalsky Krai, Udokan is Russia’s largest undeveloped copper deposit and one of the largest in the world. Its development includes the construction of Phase 1 of a mining and smelting facility to produce cathode copper and copper concentrate, an open-cut mine with the annual production of 12 million tonnes of ore, and the respective infrastructure.
ACRA Affirms AAA(RU) Rating for VEB.RF and Bond Issues with Stable Outlook
Analytical Credit Rating Agency affirmed the credit rating of State Development Corporation “VEB.RF” at AAA(RU) with a stable outlook. According to the ACRA methodology, the credit ratings of VEB.RF’s bond issues (RU000A100GY1, RU000A100BM7, RU000A1004U0, RU000A1003W8, RU000A1001V4, RU000A0ZZZP3, RU000A0JXU48, RU000A0JXU71, RU000A0ZYLH3, RU000A0ZYLJ9) are equivalent to that of VEB.RF, i.e. AAA(RU).
ACRA’s press release says that the credit rating of VEB.RF is assigned at the level equivalent to financial obligations of the Russian government “based on a very high probability of the extraordinary support from the government due to its high systemic importance for the Russian economy and essential state influence on VEB.RF’s creditworthiness.”
ACRA’s analysts point out that VEB.RF is not a commercial bank and engages in national projects. VEB.RF is a development institution operating with a unique legal mandate for the financing of strategic investment projects that cannot be delivered by commercial banks due to high risks and regulatory factors. VEB.RF has a considerable scale of operations in the Russian economy with its assets accounting for around 20% of the federal budget expenditures in 2018. ACRA believes that currently VEB.RF’s functions cannot be transferred to other state or private organisations.
Furthermore, ACRA recognises the stabilisation of VEB.RF’s financial results and gradual improvement of its debt profile. Given the budgeted financing, a high probability of additional financial backing from the government, and the financial institution’s own resources, ACRA believes that VEB.RF will have no problems with honouring its obligations unless there are serious external shocks.
VEB.RF issued short-term bonds in additional placements to companies and corporations on 10, 11 and 12 July 2019.
The Bank raised 12 billion roubles, including 10 billion roubles from bonds with a maturity of 14 days and a coupon of 7.28% p.a., 1 billion roubles from bonds with a maturity of 21 days and a coupon of 7.27% p.a., and 1 billion roubles from bonds with a maturity of 28 days and a coupon of 7.27% p.a.
The par value of one bond is 1,000 roubles. The bonds were sold at 100% of their par value. The coupon is payable at maturity.
The arranger of the bond issue is Gazprombank.
The bonds are on the Moscow Exchange’s Quotation List Level 1. The depository is National Settlement Depository.
State Development Corporation “VEB.RF” and its subsidiary, Russian Export Centre, provided backing for exports to Uzbekistan in the amount of more than 1 billion euros. VEB.RF’s new loan agreements provide for 174 million euros worth of financing to be extended in the next three years to promote Russian high-technology exports to Uzbekistan. Delivery of trains for the Tashkent Metro and electric power equipment is one of the projects.
“Uzbekistan has become for us an important business destination. VEB.RF is committed to encouraging bilateral trade and economic cooperation. Primarily, we are talking about carrying out electric power and urban infrastructure projects in Uzbekistan. We have been promoting multifaceted cooperation with our financial partner in Uzbekistan, the National Bank of Uzbekistan, in particular via the Shanghai Cooperation Organisation Interbank Consortium. Notably, funds are being successfully drawn down under two electrical power projects. Several projects are currently being scrutinised,” VEB.RF’s Chairman Igor Shuvalov said.
At the end of May this year, during the visit of Dmitry Medvedev to Uzbekistan, VEB.RF and NBU signed a new 10-year loan agreement to finance a project on the delivery of five trains for the Tashkent metro for a total of 22.14 million euros.
VEB.Rf is currently considering cooperation on potentially worthwhile hydropower projects in Uzbekistan. The corporation intends to commit up to 280 million euros for the projects.
“Uzbekistan’s economy is rapidly developing, with a special focus placed on the public transport upgrade. We hope that our pilot project on the delivery of metro trains will be followed by other interesting projects relating to the exports of Russian technologies to Tashkent,” Igor Shuvalov emphasised.