Russian petrochemical company SIBUR, in a 50/50 joint venture with SolVin, part of the Belgian Solvay group, signed a Eu750 million ($1.07 billion) project financing for the RusVinyl project on 17 June. The 12.5-year financing, for Europe’s largest integrated polyvinyl chloride (PVC) plant, comes from BNP Paribas, ING Bank, HSBC, Sberbank and the European Bank for Reconstruction and Development.

The deal is significant because it is the first time that international banks have been prepared to accept full onshore Russian market risk, though they do benefit from ECA cover. “It was part of the joint operating agreement with SolVin to develop the project using a project financing but the original deal with regional banks was hit by the credit crisis,” says Pavel Ananienko, the head of SIBUR’s treasury department. “It would have been possible to place the entire financing with a single Russian bank, such as Sberbank, but the debt pricing would have been higher and the Euro costs of the project meant that a Ruble-only debt package would not have been ideal.”
 
The total project costs are Eu1.45 billion. The agreement includes an 11.5-year loan of the Ruble equivalent of Eu150 million from Sberbank, a Ruble equivalent of Eu150 million 11.5-year loan from the EBRD and Eu450 million 12.5-year export credit agency facilities. The ECA facilities are split between a Eu350 million Coface tranche and a Eu100 million tranche from Belgian export credit agency ONDD, both funded by BNP Paribas, ING Bank and HSBC. The ECAs are providing banks with 95% political risk insurance and 85% commercial risk. The debt is fully amortising and the average life is 6.7 years post-construction. There is a Eu700 million equity component, leading to a debt to equity ratio of 52:48.

The reason the ECAs are covering a comparatively low proportion of the commercial risks is because of the absence of any uncovered commercial tranches. The ECAs wanted to share the risk and rewards with the banks so lowered their usual 95% cover. The lower coverage also meant lower premiums for the sponsors. 

The PVC plant will be built at Kstovo in the Nizhny Novgorod region of Russia, with construction already under way and commissioning expected in 2013.  Production capacity will be 330,000 tonnes of PVC and 235,000 tonnes of caustic soda per year, with the flexibility to further increase capacity up to 500,000 tonnes of PVC per year by 2016. The plant will produce a range of PVC not currently produced in Russia that uses Solvay technology.

To mitigate the market risk there is a Eu125 million liquidity support undertaking provided 50/50 by the sponsors. This is a contractual obligation and is not disbursed upfront into an escrow account. This contingency will be used to top-up the project cash flows in case it is required to service the debt and is provided on top of customary debt service reserve account. Despite the absence of offtake agreements the economics of the plant are robust given growing demand for PVC in Russia, and the high proportion of this demand (50%) that the country meets with imports. It is expected that almost all of the PVC and caustic soda will be destined for the domestic market, although a portion may be sold in Europe. SIBUR is supplying the ethylene feedstock for the plant under a long-term contract.

After the breakdown in the original financing, EBRD’s early participation was crucial to the deal’s ultimate success. “The EBRD had a very positive role in the structuring process,” adds Ananienko. “It was the core lender and was first approached to structure deal. The EBRD knew what was bankable and would attract other lenders. With the EBRD we produced a 54-page term sheet and then went out to other lenders.”

The commercial banks were approached in 2010 and formally mandated in December. Given the relatively small amount of debt required the sponsors decided against approaching the highly liquid Russian development bank VEB, confident they could source cost-effective Euros. There is no FX hedging in the deal, with the sponsors happy to accept the natural hedge of the sales in Rubles and Euros against servicing the debt costs and other inputs.

One notable aspect of the financing is that all lenders signed a single facility agreement, which is particularly challenging given the different nature of the lenders and is unusual for Sberbank which normally lends under a separate agreement, and the EBRD tends to participate using A/B loan structures.



JSC RusVinyl
Status: financial close 17 June 2011, drawdown expected by end of August
Description: Eu750 million 12.5-year debt financing for Europe’s largest integrated polyvinyl chloride (PVC) plant
Sponsors: SIBUR (50%) and SolVin (50%)
Mandated lead arrangers: EBRD, Sberbank, HSBC, ING Bank (documentation bank) and BNP Paribas (ECA coordinating bank, security and inter-creditor agent)
Financial adviser: HSBC
Sponsors’ legal counsel: White & Case
Lenders’ legal counsel: Linklaters
Market Adviser: Nexant
Technical Adviser: Nexant
Insurance Adviser: Marsh
Environment Adviser: ERM
EPC contractor: Technip