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April 2008 | ifr special report | 9 RUSSIA AND CIS LOANS ROUNDTABLE

fronting bank, for various reasons. So whereas before we were able to get around this issue of withholding tax between Russia and certain countries in Asia and the Middle East, today it is becoming more difficult. This is another obstacle to tapping that liquidity.

James Nisbet: A lot of countries need to work a lot harder on double taxation treaties, because certainly a number of deals we have done recently we have had to act as fronting bank. We closed a deal in the Ukraine recently where we were fronting bank and certainly the accounting rules now are starting to clamp down on this, because really from an accounting perspective whoever books the interest should be disclosed. So the whole fronting structure really is something that banks are trying to move away from, very clearly. But of course I think it is one of the major obstacles and has been to getting these Asian investors more interested in the market, because time and time again they come up against this. Sometimes in secondary they can buy through sub-partic- ipations, but again that is not an ideal scenario. Banks like to get the asset off their balance sheet in its entirety. So these more technical areas need to be addressed and I think it is going to take time for that to happen.

IFR: We have seen a revival of the pre-export structures this year. Initially this structure was put in place primarily to mitigate country risk, so as Russia’s credit quality increased the need for that structure would fall away. But Russia’s credit has not changed in fact it improves, with oil pumping out the ground at $100. So why the revival? Why is there the comfort in this structure?

Christian Eberl: I think in an environment where each credit department is scrutinising each transaction and each credit twice or three times, asking more questions, even if the borrower is well known, it is always good if you have a good structure behind, a proven structure which has worked in the past, even in very difficult times. That is the first thing. It makes life easier to get something approved and also to get big chunks of commitments approved. The second point is country limits. Despite, Russia having improved in terms of external rating, still banks need country limits for the transaction, and once we have an offshore

Christian Eberl, UniCredit Market & Investment Banking “

A lot of countries need to work

a lot harder on double taxation treaties, because certainly a number of deals we have done recently we have had to act as fronting bank.

structure can broaden your potential investor base because all the commodity trade finance banks will look at it who might not be able to look, for example, to an unsecured transaction.

payment stream, banks can have a certain relief on country limits. With just these big jumbo amounts and big takes the banks have to put on balance sheets, I think the banks are willing and able to go this route to a certain extent and increasing their country limits, but at a certain point in time each bank will reach a certain country ceiling. Therefore I think these are two major things in terms of why the secured lending is back. The other thing is the secured or pre-export finance structure still allows tenors of three years to five years with an amortisation schedule, and when structuring deals you want to get maximum liquidity and for all of us as MLAs, flexibility is required. Really we try to structure a loan in a way that we think we can tap each potential investor, each pocket of liquidity, and clearly a pre-export

James Nisbet: Banks have also learnt a lot from what we have seen in Western Europe. We have seen a weakening of structures on the leveraged markets and clearly that has been part of the issue with the demise of that market. Even in Russia structures need to be tightened up. We have been through a period where unsecured lending has become much more prevalent in Russia and CIS, but now people are going back to basic credit analysis, which is exactly what the market should have been doing all along. So now it is unsurprising that the banks, all of us that are lending, we are scrutinising structures much more closely and saying, well, in the current environment where we have a potential recession coming up, nobody knows how this is going to impact Russia and the emerging markets, credit risk is in the forefront of people’s minds. They want to protect themselves, so you are seeing appetite for shorter-term risk. But the longer term three and five-year deals, as Christian was saying, people will do those, but they want to see a good structure in place that gives them comfort that if something goes wrong they can catch it early.

Hasan Mustafa: It is ironic as you have a country where you have the world’s largest gas company, you have the world’s

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