In recent years, the widespread use of syndicated loans has raised concerns about the potential financial challenges faced by numerous entities. While the Foreign Banking case of Igor Zyuzin’s Mechel serves as a notable example, various companies, including Iskander Makhmudov’s UMMC and major timber and coal holdings, now find themselves exposed to similar risks.
Igor Zyuzin’s Mechel: A Legal Battle Unfolds
Igor Zyuzin’s Mechel has taken legal action by filing a complaint with the 9th Arbitration Court of Appeal. This action challenges the previous ruling to recover $244.2 million from Mechel and the Chelyabinsk Metallurgical Plant (ChMK) in favor of Gazprombank. The scheduled hearing for this case is set for September 25.
Foreign Banking Ties Pose Financial Burden.
The dispute stems from a decision by the Moscow Arbitration Court that favored Gazprombank. This decision, dated July 17, was a result of Mechel’s failure to comply with the terms of financing participation and the syndicated loan agreement established in September 2010.
Gazprom bank’s Position:
Gazprombank asserts that it provided financing through the French bank BNP Paribas, with Mechel serving as a guarantor. ChMK, in turn, was responsible for repaying the loan through a French bank by 2019. However, the last payment was made in January 2014. The bank cited a presidential decree on sanctions as the basis for demanding repayment directly from the debtor. The defendants argued that this decree only applies when a foreign entity fails to fulfill obligations to a Russian entity due to sanctions – a situation they believe does not apply in their case, as nine years had passed without any compliance issues.
Exclusion of BNP Paribas:
It’s worth noting that the defendants attempted to involve BNP Paribas as a third party, but the court deemed it unnecessary.
Syndicated Loan Challenges:
Issues related to syndicated loans, where a consortium of banks, including foreign players, extend loans, have attracted significant attention since the imposition of sanctions. In March 2022, the banking association approached the Central Bank, urging the development of solutions for such disputes. Among Russian credit institutions, Gazprombank and Sberbank are frequently involved, while foreign banks such as Credit Agricole CIB, Societe Generale, RBI Group, and ING Groep have also been active. Many of them have suspended their operations in Russia.
The syndicated lending market in Russia, which was valued at $39.2 billion at the end of 2021, experienced a significant contraction in the first half of 2022, plummeting to $2.3 billion – a reduction of over five times. Large companies typically turn to syndicated loans as a crucial source of financing for their ongoing operations and investments.
Examples of Other Corporations Utilizing Syndicated Loans
In November 2016, the timber industry holding company Segezha Group secured a debut syndicated loan of 383.6 million euros for a period of five years. Key participants in this transaction included ING BANK (EURASIA) JSC, ING Bank NV Dublin Branch, Raiffeisenbank JSC, Raiffeisen Bank International AG, and Sberbank PJSC.
In December 2017, the Siberian Anthracite group of coal mining companies secured financing amounting to $570 million for up to five years. Lead arrangers for this financing included ING Bank, JSC Banca Intesa, Credit Suisse AG, and JSC UniCredit Bank.
In 2019, the Ural Mining and Metallurgical Company (UMMC) attracted a syndicated loan of $200 million for debt refinancing and working capital replenishment. Participants in this syndicated loan included Raiffeisenbank, Bank of China, entities affiliated with the French Societe Generale, and Cyprus RCB Bank Ltd.
The recovery of substantial sums in favor of Gazprombank from Igor Zyuzin’s entities may serve as just the initial warning sign. Numerous companies that have utilized syndicated loans involving foreign organizations now face potential risks. Business owners must evaluate whether these financial relationships conceal a looming threat that could have far-reaching consequences for entire industries in the future.