16 Feb 2018 09:56

VEB signs first agreements under 'project financing factory'

SOCHI. Feb 16 (Interfax) - VEB, Russia's state development bank, has signed the first letters of intent to organize syndicates for the implementation of projects within the context of its so-called project financing factory with the initiators of the proposed projects, the lender said in a statement.

The overall cost of the first projects on which agreements have been signed is 180 billion rubles. VEB has disclosed the details of four factory projects.

One of the projects is the construction of the Taishet Aluminum Smelter with capacity of 429,000 tonnes at a cost of 80.3 billion rubles. The borrower is Rusal Taishet LLC. The financing is expected to be provided by the participants in the syndicate in equal shares. VEB's participation amounts to 18.5 billion rubles. The financing will be provided for a term of 14 years.

The factory will also finance the completion of construction and launch of rolling facility at the Krasnoyarsk Metallurgical Plant (KraMZ), a division of billionaire Oleg Deripaska's En+ Group. The overall cost of the project is 8.1 billion rubles and VEB's participation will amount to 6.8 billion rubles.

There are also plans to provide financing for the construction of the third phase of a methanol production facility with capacity of 500,000 tonnes in Tula Region. The overall cost of the project, which was proposed by OJSC Schekinoazot, is 23.7 billion rubles.

The factory will also finance a project being carried out by the Center for Development of Nuclear Medicine to set up production of the active pharmaceutical ingredient of strontium-84 (82Sr) at a cost of 3.2 billion rubles.

It was reported earlier that VEB had selected the first six projects to launch the initial phase of its project financing factor. In addition to those mentioned above, the bank planned to finance a project to set up catalytic production at Gazpromneft-Catalytic Systems and the construction of the VaninoTransUgol transport and transshipment complex.

The factory is expected to operate on a pilot basis in 2018, with projects submitted for construction to VEB's supervisory board, which will also monitor the use of funds in the account of the specialized project financing company (SPFC) that will issue bonds for projects.

The federal budget for 2018 allocates 294 billion rubles in state guarantees for bonds issued by the SPFC and more than 820 million rubles in subsidies to offset interest costs under the VEB factory.

Financing through the factory will be provided for up to 15 years in amounts upwards of 3 billion rubles. Various options are being discussed for calculating interest rates on the loans. They might be fixed (calculated as 4% inflation plus the return on inflation-linked OFZ federal bonds plus a premium, but no more than 3.5%), or floating, linked to the Central Bank's key rate.

It is expected that project financing will break down into 20% equity, in which VEB's share is not supposed to exceed a third, with the rest coming from project initiators; and 80% borrowed funds, syndicated through tranches to reduce the risks of project participants.

Overall financing will be divided into two tranches: an A tranche of 10% to 40% of financing with a low return for institutional investors; and a B tranche with higher return, but less secure (for banks). In addition, VEB later also introduced an optional B tranche for itself that could become protective for tranches A and B; this tranche would not exceed 20% of total debt financing.

VEB also signed agreements in Sochi on cooperation for financing new production facilities under the factory mechanism with the Eurasian Development Bank (EDB), Russian Regional Development Bank (RRDB), Sovcombank and International Investment Bank.

The agreements on cooperation between VEB, as the operator of the factory and organizer of syndication, and commercial and multilateral development banks propose to look for and explore investment projects and make decisions on whether they can be financed within the context of the factory.

VEB also signed agreements on cooperation in organizing collaboration to finance factory projects with participating banks - Sberbank , VTB and Gazprombank .

Under these agreements, the banks have the right to initiate consideration of investment projects for possible factory financing and participate in expert evaluation of projects. VEB will ensure expert evaluation of projects and the creation of an integrated information system to share information and work with factory participants.

Under reached understandings, the Russian Direct Investment Fund (RDIF) will also participate in the operations of the factory and provide equity financing to select projects.