Denis Shanurenkov, Sberbank CIB INTERNATIONAL AND RUSSIAN BANKS: SPECIFICS OF JOINT SYNDICATIONS

Denis Shanurenkov, Sberbank CIB INTERNATIONAL AND RUSSIAN BANKS: SPECIFICS OF JOINT SYNDICATIONS

USD, bln Russian banks in syndications 7 6 5 4 3 2 1 0 Russian MLAs participation in syndications (USD, bln and %%) Number of deals with Russian participants Source: Dealogic Russian banks in MLA league tables Russian MLA s 2012 Russian MLA s 2012 Eastern Europe MLA s 2012 7 8 8 Sberbank VTB 18 1 3 7,5% 23 Sberbank VTB 14,3% 2009 2010 2011 2012 16 8 10 25 20 15 10 5 0 VTB Sberbank Stable growth of Russian banks participation in syndications Increase of RUR-nominated syndicated loans (2,6% y-on-y growth in 2012 vs. 2011) Syndicated deals under Russian law Transactions with increasing participation of the Russian banks: - project finance - real estate financing - long-term financing (more than 5 years tenor) - RUB-nominated financing

Selected transactions in Russia and CIS 2013 2012 2012 2012 2012 GeoProMining USD 250M 5 years Russian Standard Bank RUR 4000M 1 (+1) year NGCC LLC USD 500 M 3 years Nord Gold USD 280 M 6 months Uralchem Group USD 220 M 5 years 2011 2011 2011 2010 2010 Rusvinyl EUR 750M 11 years UC RUSAL USD 4 750M 7 years Metalloinvest Group USD 3 100М 5-7 years Renova Group of Companies CHF 2 000М 7 years Tatneft USD 2 000М 3-5-7 years

Identifying benefits Foreign banks in syndications + Russian banks in syndications = Combination of Parties respective strengths from which the Borrower and the Lenders benefit Expertise in certain industry sectors Expertise in structuring (for ex. PXF) Offshore role taking English law application Lower margin Higher risk-taking abilities Long-term financing (5-10 years) Considerable amounts of participation Strong positions in financing in Roubles Deep knowledge of the Russian borrowers and industries Local security agent role and access to Russian security On-site experience

What are the main issues? Cost of funds - dual-tranche approach - back-to-back financing - non-funded risk taking Voting rights - big ticket size - uneven amortization in dual-tranche structures Technicalities

Dual-tranche approach in syndications What are the reasons for dual-tranche structure in syndicated loans? - Pricing - Longer tenors - currency considerations - facilities with embedded derivatives - stand-by facilities

Back to back approach Benefits - better pricing - extension of the client base - larger flexibility in the transaction terms - publicity Requirements to the Borrowing bank - strong external ratings and proved reputation in international markets - prompt relations with the leading international banks - experienced team

Non-funded risk taking Benefits - extension of the client base and the range of transactions - improvement of relations with the borrowers and the lenders - risk diversification Key considerations - low margin transactions - less publicity, no leading role in the deal - no relationship and cross-sell elements - borrower group limit restriction

Voting rights and historical solutions Different levels of decision-making in the Facility agreement: - all lenders consent - super-majority lenders consent - majority lenders consent - combinations of the above Pure international syndicate Bank1 Bank2 Bank3 Russian&International syndicate Bank2 Bank1 Russian banks Restriction of the lenders voting rights in the deal in relation to certain (usually non-material) questions despite of the Lenders participation amount Lenders voting rights in relation to the key transaction terms are independent of their participation amount (for ex. EBRD s / IFC s voting rights in the transactions) Voting rights in dual-tranche loans: - Majority Lenders are determined for each tranche - Enforcement action - Replacement of a Lender Limitation of voting rights. Cap on voting rights in case Majority = 1 bank

Joint syndications but different views Different regulation framework: - jurisdiction of the Borrower - no Basel III regulation rules for Russian banks - Bank of Russia s regulation rules for Russian banks (for ex. in determining remedy periods for payment default) - Federal law 223 regulation for state-owned Russian banks Fees definition (upfront fee vs. arrangement fee) Mechanism of upfront fee administration Reference banks Russian translation Russian sureties vs. English law guarantees FX rate in case of different currencies Signing Date vs. Effective Date

Case studies CASE STUDY 1 CASE STUDY 2 The transaction Club loan for the large Russian borrower structured in 4 tranches with different currency and different repayment terms Sberbank of Russia doesn t participate in the tranche of other MLAs, but all tranches are under the same Facility documents The transaction Syndicated loan for the large Russian borrower with two tranches Tranche A arranged by international banks Tranche B arranged by Russian banks only with longer tenor and grace period MLAs Sberbank of Russia among 7 Russian and international banks with total amount of participation in excess of 34% MLAs Sberbank of Russia among 15 Russian and international banks What to learn? Participation adjustment for the purpose of voting entitlement Subordination Stand-by tranche What to learn? Dual-tranche approach in Majority Lenders definition Enforcement action in case of disagreement between the Majority Lenders

Conclusion Joint syndications is a fact of life Funding costs is a key consideration Voting rights: one vote for one dollar Different regulators different requirements Benefits to all parties Common interests and solutions. No conflict of interests