Rlpc chinese banks try to boost share of russian loan market

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Oct 3 Chinese banks are trying to gain market share by lending to Russian companies after a third round of US and European sanctions in early September shut nearly all Western banks out of the lucrative Russian loan market. This follows a push by the Kremlin to forge closer economic ties with Asian countries to offset deteriorating relationships with the West after Russia's annexation of the Crimea in March. Sanctions have hit the Russian loan market hard. Lending of $11 billion in the first nine months of 2014 was 73 percent lower than $40.4 billion in the same period of 2013, according to Thomson Reuters LPC data. Chinese banks are now looking to boost their profile and business in the Russian loan market while Western banks are unable to lend, bankers said."We have to take advantage of the situation over the next twelve months. We are looking for long term gain and if we end up being the only shop in town, that is great," a loan banker at a Chinese bank said. Talks include loans to sanctioned Russian companies as well as less controversial loans to non-sanctioned Russian companies, the bankers said. Lending to sanctioned Russian companies is a highly sensitive issue and any loans from Chinese banks are likely to be done on a low profile bilateral basis initially."Deals with sanctioned corporates will be under the radar between China and Russia. We are a major player in the global arena and we will look to take advantage of the market but not right in the faces of Western banks," the loan banker said.

Any loans by Chinese banks are likely to be denominated in Renminbi (Rmb) or roubles as Chinese lenders with large operations in the US will find it difficult to lend dollars in the face of sanctions."We will lend to our key clients in Rmb not dollars. We have a significant presence in New York and we are very conscious of doing dollar deals, even to non-sanctioned entities," a loan banker at a second Chinese bank said. OPPORTUNITY KNOCKS Chinese banks are already big lenders to state-owned and quasi state-owned Russian energy companies such as Rosneft and Gazprom and sanctions are allowing them to boost business with these clients.

"The relationship between Moscow and Beijing is strengthening and a number of long term agreements over energy pipelines are being discussed which will need financing," the second loan banker said. Rus Hydro, Russia's largest hydropower producer, said that it was planning an extensive roadshow to attract investment from China this week. Gazprom began construction of the giant 'Power of Siberia' gas pipeline at the beginning of September, which will carry $400 billion of gas to China after 2019. These deals follow Rosneft's $60 billion deal to supply China with oil in June. Putin advised Russian companies to forge close energy deals with Asia as Europe tried to cut imports of Russian oil and gas.

Some Chinese banks are now also willing to expand lending beyond existing state-backed energy clients to private Russian companies, which have previously been banked by European and US banks."The last round of sanctions clearly wanted to expand sanctions into the private arena by including Lukoil. This has opened up an opportunity for us to start looking at the private space," the first loan banker said. Western banks are currently exploring loans to non-sanctioned Russian companies, but remain wary of counterparty risk and are poised and waiting for a political solution to resume full lending."If the politics are sorted out, you wouldn't get a seat on a plane to Moscow the next day," a banker at a US bank said. Western banks are currently looking at two potential loans for non-sanctioned companies, but it is unclear whether they will be able to lend. Promsvyazbank has issued a request for proposals for a $300 million refinancing and an ongoing $250 million deal for Russian nuclear company Tenex is also under discussion.