On June 27, 2016, CEE Legal Matters reported that Orrick had advised Sberbank and VTB on RUB 70 billion in financing for Telmamskaya HPP LLC (a subsidiary of EuroSibEnergo Group, which itself is part of the En+ Group energy and natural resources industrial conglomerate). Baker Botts advised Telmamskaya HPP on the deal.
The loan financed Telmamskaya’s RUB 70 billion acquisition of 40.29% of Irkutskenergo PJSC, a company that operates several hydroelectric power plants, thermal plants, and electric networks, from Inter RAO Group.
- Dmitry Gubarev, Partner, Orrick
- Konstantin Garmonin, Partner, Baker Botts (answering select questions)
How did you become involved in this matter, Dmitry? How were you selected as external counsel by the banks?
D.G.: For the past few years we have represented both Sberbank and VTB on various other financings, including several Russian law-governed syndicated loans, and I believe that our experience was the reason for sending us the RFP and choosing our team to work on that transaction. We were approached by both banks in early April 2016. As the timing of the closing of that transaction was rather limited, we were selected very quickly after we provided our proposal.
At what stage were you brought on board, and what, exactly, was your mandate when you were retained?
D.G.: The security structure and certain terms of the financing were changing in the course of our work during the transaction. However, in general our mandate did not change: we were responsible for drafting all the financing documents, issuing necessary legal opinions, collecting condition-precedent documents, and negotiating the financing documents on behalf of the banks.
Who were the members of your teams, and what were their individual responsibilities?
D.G.: The team consisted of myself, my Partner Konstantin Kroll, Associates Svetlana Gareeva, Maria Illarionova, and Victoria Bryxa, and legal assistant Diana Tsaprilova. Svetlana, Maria and I were primarily responsible for the drafting and negotiating of the financing documents. Konstantin focused on corporate aspects of the transaction. Diana was responsible for assisting with collecting the CP documents.
K.G.: The Baker Botts’ core team consisted of senior members of our Russian finance practice, including me and Finance Associate Kira Gladkoborodova, both based in Moscow. The team was also able to draw upon expertise from our other European offices on matters requiring specialist input.
Please describe the final deal in as much detail as possible – in other words, how was the financing structured, why was it structured in that way, and how did you help it get there?
D.G.: The financing was used for payment for the acquisition of 40.29% of shares in PAO Irkutskenergo (a major energy company in Eastern Siberia). PAO InterRAO was the seller and the borrower – OOO Telmamskaya GES, which belongs to EN+ Group – was the buyer.
The facility agreement was based on the standard form that was recently developed by the Association of Russian Regional Banks. The standard form was the product of a major collaboration by a group of experts, including both lawyers and bankers. I am proud to be a part of that team, and therefore was particularly excited about doing another financing on the basis of that form.
Since this standard form is rather new (Orrick has done three transactions on the basis of that form, though overall there have been fewer than ten), a lot of provisions of the facility agreement required more time for negotiations compared to LMA-based financings. However, the parties did their best to achieve a successful closing in a very limited time frame.
K.G.: A transaction of this size and complexity was successfully closed in a very ambitious time scale thanks to an exceptional level of commitment that all parties and their counsel devoted to the transaction.
What was the most challenging or frustrating part of the process?
D.G.: The financing banks had to follow a very tight acquisition schedule. That ambitious timing was the biggest challenge. It took us six or seven working weeks to draft and negotiate all the documentation and to achieve a successful closing. We had to work at night and on the weekends. Both teams were under a lot of pressure in order to get the deal done within such a limited timeframe.
Was there any part of the process that was unusually or unexpectedly smooth/easy?
D.G.: We had very professional counterparts on the other side – Baker Botts – and although they did a great job in defending their client’s interests, I believe we understood each other very well throughout the negotiation process, which was helpful given the complexity of the deal.
Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?
D.G.: Certain details of the deal structure changed, but generally the structure was the one that had been initially anticipated.
What individuals at Sberbank and VTB directed you, Dmitry, and how would you describe your working relationship with your clients?
D.G.: We represented both banks equally and received directions and answered to both of them. There were large teams involved from Sberbank and VTB, but primarily we were instructed by Marina Matveeva from Sberbank and Mikhail Tamaev and Anton Loginov from VTB. Most of the discussions and conference calls involved both banks and, therefore, we managed to work out decisions that were acceptable to both our clients.
How would you describe the working relationship with your counterparts?
D.G.: The Baker Botts team is very professional and a pleasure to work with.
How would you describe the significance of the deal?
D.G.: I believe the deal is very significant for Russia. First of all, these days there are not so many financings of that size in Russia (70 billion rubles is more than USD 1 billion). Secondly, this deal demonstrates that the new standard documentation developed for syndicated financings under Russian law is and will be used in Russia, particularly for large domestic syndicated deals. I believe each Russian law-syndicated financing increases the sophistication of the market.
This transaction – along with a few similar deals we have recently worked on – demonstrate that the changes to the Russian Civil Code that were introduced last year have created a legal basis for structuring complicated financings purely under Russian law (with complex covenant packages, reps and warranties, sophisticated security structures, etc.). Deals like this show that the domestic Russian market is becoming more and more mature, notwithstanding the decline in cross-border financings involving Russia for the past two years.
I am also glad that I and my team members who over the years have been working on the formation of the standard financing documentation can now use it in practice. I am sure there will be more and more complex Russian law syndicated financings involving a larger number of banks.
K.G.: This transaction proved to be one of a select few syndicated financings to date in Russia fully done under Russian law to the best international standards for such transactions.
Our team is seeing a marked demand for using Russian law in complex lending transactions, which reflects several factors, including a trend of “de-offshorizing” the corporate structures used in the Russian debt market. This is driven by Russian tax law developments and sanctions concerns, as well as a number of positive developments in Russian law which are helping to facilitate such structures.
This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.