The predominance of club structures in the loan market next year will make it difficult to kick-start the syndications market in central and eastern Europe, as it could prolong the struggle to find market-clearing margins and define new pricing benchmarks, bankers cautioned this week.
While there were encouraging signs that the market will re-open by 2009 — when some borrowers might be able to access funds through club loans and pre-export financing structures — attendees at the Euromoney seminar on loans in the CEE in Vienna this week warned the market would not truly get back on the road to recovery until transactions were syndicated again.
"The syndicated loan market as we’ve known it in the last couple of years is gone," one loans banker said at the conference, conducted off the record.
The revival of the market might be further delayed by the lack of real syndications expected at least in the first half of 2009, as lenders will not be addressing the problem of how to price deals attractively for sell-down in the wider market.
"I think club deals stall the market," said one banker speaking on a panel. "I can see why we are doing them, and they are a short term solution, but it delays the inevitable, and we need to find a suitable pricing mechanism."
In Russia in particular, any syndications launched after Lehman Brothers’ bankruptcy have struggled to gain traction, even though on many the pricing was flexed upwards. Steel maker Severstal, for example, failed to pick up any commitments in general syndication on its recent $1.2bn loan, although the margin was increased by 50bp.
While bankers are in no doubt that pricing is in for a big jump next year, many are uncertain of whether a pricing floor had been established yet.
Some suggested that the loans extended by Vnesheconombank, the Russian state development bank, to the country’s ailing borrowers, had at least provided a preliminary floor for next year’s transactions. Vnesheconombank is helping corporate and bank borrowers repay their foreign debt by granting them funds at 500bp over Libor.
"Vnesheconombank has provided a benchmark of some sort at least," one loans banker told EuroWeek. "Their loans come in at 500bp, but with a lot of strings attached. Borrowers may be willing now to pay a bit more than that to foreign lenders, so they can avoid going to Vnesheconombank, and get it without any big restrictions. And if they are not able to get it from Vnesheconombank at all, they might be willing to pay a lot more."
New pricing mechanisms
Loans bankers also said this week that it was not just setting margins they were concerned about — but about pricing methods too. Many officials at the Vienna conference urged market participants to come up with solutions about how to price transactions and kick-start the market.
"Until people in this room recognise the severity of this crisis, the market is not going to start again," said another banker in Vienna. "We need to think radically in terms of providing solutions, although there are many prerequisites outside our control that we need to get this market started."
Worries about whether or not Libor has been reflective of lenders’ cost of funds have been coupled with escalating worries about the financial stability of the region, making it increasingly difficult to set pricing on loans to make them attractive to lenders.
"We are brainstorming about ideas, and looking at CDS pricing, or perhaps blending three month Libor with the overnight index," said one banker.
Others added that they had looked at the more widespread introduction of bank reference rates for loans in the region, in a move away from screen-based Libor.
But as well as pricing, another concern next year is banks’ ability to lend to the region in the same way as before. With many western European lenders hit by the financial crisis — and with many receiving government aid in the form of loans and guarantees — loans bankers are increasingly worried about how much capital banks will allocate to lending in central and eastern Europe next year.
"The big question is what restrictions will be placed on banks going forward?" one banker at a German institution asked at the conference. "We are kidding ourselves if we think we’re going to be able to do business like in the past, especially for government-owned banks."
The concern was echoed among bankers throughout the two days of the conference, with many reiterating that lenders would be forced to concentrate on their core markets next year.
"Lending to Russia is unfortunately way down on the list of things to do at the moment," one banker commented.
|
