Moscow bank uses Dublin SPV route to expand lending
A Russian oil company that is effectively barred from international capital markets by western sanctions has found an ingenious workaround - it involves a Moscow bank taking a detour to Dublin.
In February, Credit Bank of Moscow PJSC used an Irish shell company to issue $500m of bonds to investors including Goldman Sachs.
While the marketing materials for the offering didn't dwell on the bank's relationship with Rosneft PJSC, the Russian state-controlled oil company has drawn the lender into close orbit, making hundreds of millions of dollars in deposits at a time of financial duress and borrowing billions in return.
The Moscow bank isn't subject to sanctions and doesn't face any limits on raising funds from international investors.
The money it brought in through the Irish special purpose vehicle, or SPV, didn't go directly to Rosneft.
Yet the manoeuvring allowed the bank to expand its lending to the oil company, highlighting one way Russian firms are circumventing US and European restrictions. Those kind of ties are getting riskier as the US begins to target a wider group of oligarchs and Russian companies. Last month, sanctions slapped on aluminium producer Rusal roiled markets and devastated its bonds sold through an Irish SPV before the restrictions were put in place.
"Credit Bank of Moscow could face heightened risk around the lending to Rosneft," said Peter Harrell, a former US deputy assistant secretary of state for counter-threat finance and sanctions and now a fellow at the Centre for a New American Security.
"The risk profile for this kind of lending is definitely higher today than it was at the beginning of the year."
Russian companies are among the biggest users of Irish SPVs
Credit Bank of Moscow's Irish SPV, CBOM Finance Plc, has raised more than $2.3bn since November 2016, according to Irish Companies Registration Office filings.
The February offering was arranged by banks including Credit Suisse, JPMorgan Chase and Societe Generale.
Goldman Sachs, French asset manager Amundi and Morgan Stanley were among the biggest buyers, according to data compiled by Bloomberg.
Spokesmen for all the firms declined to comment.
Vladimir Chubar, Credit Bank of Moscow's CEO, acknowledged that Rosneft is one of the lender's largest clients, but he said in a text message to Bloomberg that the scope of co-operation between the two companies didn't warrant a separate section in the February prospectus.
"Credit Bank of Moscow, being the leader in recent years on international capital markets among all Russian banks, is extremely attentive to sanctions risks," Chubar said.
"We are certain that our format of servicing Rosneft and its structures does not carry such risks."
Some investors see Credit Bank of Moscow's Rosneft connection as a sign of strength. (Bloomberg)