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SP2 | ifr special report | April 2009 Contents

Editor: Matthew Davies Deputy editor: Mark Baker Special reports editor: Solomon Teague

Contributors: Hardeep Dhillon, Donal O’Donovan , Ian Forrest, Malini Menon, Ouida Taaffe, John Weavers, Owen Wild, Mike Winfield

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ISSN 0953 0223 Printed by Wyndeham Grange Ltd


14 Looking for IG The European equity-linked market stumbled through 2008 with patchy issuance, yet there was a sign that the emerging European markets could provide another avenue. However the events of recent months have led investors to demand big, liquid issues and not the small, tightly-placed convertibles possible in CEE.

3 Two tier system The global recession has created severe budgetary distress across Central and Eastern Europe. The fiscal crisis has been met with differing responses as better regarded sovereigns access international markets to help meet their shortfalls while high beta names are forced to seek assistance from multilateral agencies like the IMF.

5 Confined market access Since the collapse of Lehman Brothers in September 2008, almost all European supply in financials public market has been limited to the senior, unsecured market. Concerted government action in response to the Lehman-induced panic gave rise to the government-guaranteed senior debt market, the meteoric rise of which has filled the void created by the moribund subordinated market to a large extent.

6 The lights are still on The loan markets in Central and Eastern Europe never built up the head of lending steam seen in those economies that flank them. Even when money was cheap the loan deals there were not particularly lavish, but now that the motor of the global economy is sputtering, lending in CEE is coming to a halt.

7 Economic sanctuary The financial downturn is putting enormous pressure on Central and Eastern European currencies, as well as the euro. Membership of the single currency is seen as a key way of protecting these economies from the vagaries of the recession, and the contagion their problems may have in Western Europe, but Europe’s politicians are loathe to relax the rules to speed their entry.

9 Investors retreat Less than twelve months ago investors were queuing up to take part in the €1.3bn IPO by New World Resources, which led to great expectations that the positive momentum generated would lead to a steady flow from the region. But the financial crisis, and the recession that followed, have decimated the extensive pipeline of deals.

11 One up, one down Derivatives exchanges clocked up new records month after month during 2007, but in 2008 things changed, with a spike in volatility trumping counterparty fears as investors’ principal concern. But in CEE the picture was more mixed: the more established Budapest exchange saw volumes fall, while Warsaw maintained its growth. Yet volumes remain focused on very few contracts in a region crying out for more international investors.

12 Borders are back The reversal of the leveraged finance market is being felt as much in CEE as elsewhere. While bigger deals are now impossible, deal flow has held up as sponsors target smaller acquisitions with local support. Yet in the background the spectre of defaults casts a long shadow over any optimism the market appears to offer.

Front cover photo credit: Reuters/Konstantin Chernichkin

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