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April 2008 | ifr special report | 11 RUSSIA AND CIS LOANS ROUNDTABLE

Hasan Mustafa: The bottom line is that, whatever is happening, this is a banking crisis. For us to say this is an unfair situation on the Russian borrowers, they should find themselves to be lucky that they are able to go out, raise money when they want it for what they want it. Yes, it is costing them, but it is costing them for a reason that we are all, as bankers and lenders, suffering from our own individual issues, and our cost of funding has gone up as well. People used to borrow sub-Libor, now it is 70, 80, 100 basis points over Libor in some of the cases. So to the extent that borrowers in

Russia even from October until now, have been able to go out and borrow one, two, three or four billion, and do it successfully and build out their strategic objectives, I think that to me is a sign which is saying that we believe in the region. Pricing is just one element of it.

Benjamin Binetter: It is not a doomsday scenario. We can all sit here with our heads up high and say that the market in Russia and CIS has held up pretty well in comparison to other markets in the world. Banks as a whole have been very sensible and reacted very quickly to an emerging crisis in the summer last year, which immediately could have been perceived not to have an impact on Russia, but the fact was that the banks reacted quickly. The pricing moved up quicker in Russia than in other markets. Structures were tightened more quickly as well. So as a whole, very large transactions are still getting sold. It takes more time and there is a price to pay for it, but as a whole they are still getting sold.

James Nisbet: I think if you took a straw poll back in, say, November last year, even probably amongst us here, to say would US$28bn worth of loans get through the market in the first quarter in Russia and CIS? Most of us would put our hands up and say probably not, but it has happened, and it is continuing to happen. The question now is how sustainable it

is. It is up to all of us: the lenders; the borrowers, to ensure that that stability continues and that the market does not run out of steam and run out of capacity. It is going to be a challenge. A lot of banks now are going to be realigning their strategies away from maybe Western Europe, away from high

Hasan Mustafa, RBS/ABN AMRO “

A lot of banks now are going

to be realigning their strategies away from maybe Western Europe, away from high yielding leveraged loans, more into better structured, better priced loans in emerging markets.

yielding leveraged loans, more into better structured, better priced loans in emerging markets. The loan market has always been flexible and it has always been able to adapt to whatever dire market conditions there are.

IFR: You have drawn a comparison between leveraged finance and Russia. Are we going to see the sort of pricing in Russia that will be comparable to leveraged market of last year?

Benjamin Binetter: In some cases, yes and I think it needs to move on the more aggressive structures; bridge loans in particular.

Hasan Mustafa: What will not happen is the leveraged finance model being applied in emerging markets. I think some people mid-2007 felt that they could cut and paste the ABC, secondary structures in Russia, but we never had faith in that structure, because they were born out of institutional demand. Our market generally relies on the bank market as an investor base. To try to sell eight-year bullets and seven-year bullets to banks was never appealing. From the point of view of if there were to be leveraged finance deals done out of Russia and CIS, I think they would have to be tailored to appeal to the banking market. They would have to be remodified. If

you look at what has happened in Turkey where a lot of acquisition and pri- vatisation deals were done, they were done on the basis that they were supposed to be distributed to the bank market, and were tailored in that respect, that there was only one senior tranche and that is the end of the story. If there is more equity needed, then it needs to be put in the pot.

IFR: Does that mean that Turkey would be more the model rather than Western Europe?

Hasan Mustafa: I would think that the Turkish acquisition leveraged finance model is possibly the one that needs to be replicated if there were to be deals done in Russia, rather than try to take something out of Germany or Spain or the UK.

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