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April 2008 | ifr special report | 13 RUSSIA AND CIS LOANS ROUNDTABLE

approach, a different type of presenta- tion. If you had to distinguish between the two, I think one would expect to see pricing continue to rise, in particular for those non-exporting domestic companies, as opposed to borrowers that have recourse to the pre-export financing structure.

Christian Eberl: I think in this respect, one fair comment might be, even if you have borrowers which do not have export receivables or hard currency revenues, I think there are still quite top names out which are operating in a basic industry where I think overall you could assume that there should be appetite from a lender’s perspective, for example telecom in Russia. All these telecom companies were able to secure funds more or less on an unsecured basis. Even telecom is a traditional local currency generating business, but it is a fundamental service everyone knows and, with a growing population, there are certain exceptions where you might be able to take a different view, despite generating local funds.

IFR: One sector that does not export but has been extremely important in the loan market is the financial institution sector. This area has a huge refinancing requirement over the next year. What are their prospects?

James Nisbet: I think you have to differentiate. Obviously the FI markets have been quite a mainstay of Russia and CIS over the last two to three years before the emergence of the more corporate-led markets. So we have all probably experienced to some extent the good and bad points of the FI market. Kazakhstan was a classic case where that market pretty much collapsed last year because there was a big concern about refinancing of these huge deals. A lot of these FIs were launching deals, say, at US$500m, raising US$1bn and then increasing the deal size. Then of course, surprise, surprise, you come to look at their balance sheet again when they are looking to refi and they are suddenly more leveraged than you expected. Hopefully people have learned from

that and the classic model where these borrowers try and raise as much oversub- scription as possible and increase the deal sizes should be a capped: banks

William Sharpe, Natixis “

If capacity, certainly individual borrower

capacity starts to get clogged up and these borrowers try and come to the market too often, then there will be some indigestion.

should have the opportunity from the outset to say, “we have the right to scale ourselves back”. You know, we might commit US$30m to this deal upfront, but actually we only want to hold US$10m. So rather than you just having the option to raise the facility size to whatever we raise, we actually have the first right as lenders to scale ourselves back rather than having to sell in the secondary market. I think there will become a saturation point. As you say, there is a huge amount of refinancing. A lot of the Kazakh banks have already said we are just going to repay our debts this year. We have already seen a lot of the Russian and Ukrainian banks coming back to the market. These deals are getting done, but they are not raising the amounts that they were before. Pricing is going up a lot. But you have to remember that there are a lot of

investors out there who only want to do FI business, particularly the smaller retail banks. There is one area of the market where you are seeing retail activity happening because some investors are only comfortable by and large lending to financial institutions that they know. So the market will continue, but as we said before, if capacity, certainly individual borrower capacity starts to get clogged up and these borrowers try and come to the market too often, then there will be some indigestion in due course. I think we were seeing two years ago borrowers quite often coming to the market two or three times a year. Those days really have to be over.

They have to say, right, what are our financing needs for this year? Let’s do one deal, get all our relationship banks into it, raise what we can, and then that is it. But doing a deal, closing it and then almost immediately coming out with another deal does not give confidence to the market. Borrowers have to become more

aware of what is happening. Some are and some aren’t. Some are still burying their heads in the sand and saying, yes, we can still do three-year deals at crazy pricing, but if you look at some of the bigger names they are more realistic. Sberbank came to the market back at the end of last year and very nearly had a disaster of a deal because they mispriced it. That was a warning signal. If you want to raise money, specifically big amounts of money, pricing has to be massively adjusted and you have to be

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