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8 | ifr special report | April 2008 RUSSIA AND CIS LOANS ROUNDTABLE


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have all worked over the years in the market to develop that global investor base. So now we are going to be looking at new areas, or not necessarily new areas, but more focusing on areas like Asia were there is investor appetite. If you look at secondary, a lot of the interest is coming from the Asian market. At the moment we are seeing appetite more obviously at the sort of borrowers who may be linked to state risk such as financial institutions or utility companies. But as the investor base becomes more interested and knowledgeable, then I think it will start to look further down. That just ties in with one of the issues about will we start to see new banks emerging as arrangers and lenders in this market, and I think to a certain extent we may do. Some of the smaller banks will start to, if they have the balance sheet available and they have the resources and the expertise, they will start to step up to take the place of some of the banks that maybe are more constrained. The challenge for book runners and arrangers will be to educate and develop these new investor bases. There is institutional money as well that can be put to play from the state funds, and we have seen a lot of the Middle Eastern funds even bailing out banks to a point. There is a lot of liquidity there, but


you have to think outside the box. You have to say, when we look at things like infrastructure deals and the more complex financings that are going to be coming up in Russia and CIS, they are not obviously going to be able to just be funded from the loan market, they have to be funded from equity and other areas. So it is finding those areas and absorbing them, maybe in conjunction with the loan market and come up with new financing solutions so that the loan market can become an integral part of these financing solutions.





IFR: Do these new investors have different requirements, different criteria when they approach deals?


Hasan Mustafa: If you start at the top, you have the oil and gas companies, then you have metals and mining. As you go down the different investor sectors, the universe keeps shrinking. A case in point is some of the retail deals had a tough time getting done, and to do a US$100m deal or US$200m deal in a retail or non-core sector of Russia is possible, but to do a US$1bn, US$1.5bn, US$2bn deal is challenging, because the investor universe is so limited.





If you look at secondary, a lot of


the interest is coming from the Asian market. At the moment we are seeing appetite more obviously at the sort of borrowers who may be linked to state risk such as financial institutions or utility companies.


and commodity sectors are key, but there needs to be a link somewhere. They get tapped, but with not much success.


William Sharpe: They definitely show up from time to time though, especially when there is an opportunity for visibility as an arranger, as a mandated arranger. If you had to try and classify their priorities, probably number one would be credit, number two would be pricing and number three would be visibility, pretty close behind. So it is obviously easiest for them to go with the big names, and these would be the oil and gas companies, or on the FI side, some of the more well known banks, either publicly held or the top private banks in Russia. So once they are pretty sure they can sell


the credit story internally, then it becomes about, how much can I make as an MLA, as an arranger, compared to how much I could get in terms of yield if I picked up the asset in secondary? And sometimes those two forces are in opposition. So this is why perhaps success has been mixed to date, in tapping Middle Eastern, Asian investor bases.


IFR: Are there obstacles in getting new investors to participate in the market?


Benjamin Binetter: I think in the syndication strategies that are implemented today, the new types of investors, new Asian investors and the like, are tapped, but I do not believe that anyone is relying on that liquidity. We are still not relying on new investors for the deals to get sold because it is actually very difficult to establish exactly where their interest lies. Some are very focused on shorter-term deals, clearly the oil and gas





Benjamin Binetter: Borrowers in Russia are certainly acutely aware of the liquidity issues that the bank market has as a whole, and are very sensitive to banks offering the ability to sell deals in new markets. But again, I have not seen that being oversold to borrowers, in that you are not seeking to pin down your syndication strategy in the hope that you are going to raise US$100m, US$200m, US$300m from those markets alone. It is really opportunistic at the moment.


William Sharpe: The withholding tax issue is still significant as well, because what we have seen is that arranging banks have become less willing to play the role of


We are still not relying on new investors for the deals to get sold because it is actually very difficult to establish exactly where their interest lies. Some are very focused on shorter-term deals, clearly the oil and gas and commodity sectors are key, but there needs to be a link somewhere.





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