Russian energy company Unified Energy Systems (UES) signed on Thursday a €100m ($90m) 3.5-year syndicated loan via the European Bank for Reconstruction and Development (EBRD).
“It’s the first syndicated loan to a Russian company since Russia’s 1998 crisis,” EBRD Vice President Noreen Doyle said. EBRD will be providing 50 per cent of the loan with the remainder coming from Citibank, Commerzbank, Moscow Narodny Bank, RZB-Austria, Erste Bank and Nordea, she added.
“It is an important transaction. It provided a catalyst for Russia to look at restructuring the industry and the company,” she said.
Discussion on the loan originally began in 1999 when “investment in Russia’s power sector was almost non-existent…and 80 per cent of bills were paid in anything but cash,” said Leonid Melamed, first deputy chairman of UES. “One of the reasons it took so long was the complexity of the UES restructuring plan, which needed approval from the government,” said Anthony Marsh, EBRD director for power and energy utilities.
“We were waiting for the final approval before starting the transaction so that everybody knew what the future would look like for both the company and the funds,” said Marsh.
The company will use €40m of the proceeds to repair electricity substations, €8m to upgrade UES’s transmission and communications systems, and one million for projects to reduce greenhouse gas emissions. The remainder will be used as working capital.
One key condition of the loan is the setting up of a committee to oversee UES’s restructuring, in line with government approved plans. Under the restructuring plan, UES is to take control of all the regional power grids and spin off the generating and distribution facilities. It is hoped that the loan and the restructuring will open the door to $50bn of new investment from domestic and international investors over the next ten years, said Melamed.
UES chief Anatoly Chubais has said the EBRD loan will also be used to finance the construction of a geothermal power plant in Kamchatka. Once the plant is put in operation, it would allow UES to cut back on fuel supplies to the Far East region.
The power monopoly also is in a good position to expand in the telecoms sector, with some of the infrastructure, such as transmission towers already in place, said Troika Dialog analyst Kaha Kiknavelidze, who added that the loan is “good news for UES”.
The utility set up its own telecoms unit, the Moscow Telecommunications Network, back in the 1970s to provide communication between Moscow and its regional utilities. UES is now looking to develop the network to provide services to companies outside the holding.