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April 2008 | ifr special report | 5 RUSSIA AND CIS LOANS ROUNDTABLE

Christian Eberl, UniCredit Market & Investment Banking; Benjamin Binetter, BNP Paribas; James Nisbet, VTB Europe

Benjamin Binetter: Returning to point regarding pricing, moving or closing the gap with bond pricing, that is certainly something we are seeing on bridge loans where the intention is to refinance the loan through a capital market product. It is not something that we are seeing yet on longer term, three or five-year standard secured pre-export financing that we see in Russia. That still has to be built in. Gradually that is going to increase, but the shorter term unsecured deals have certainly been priced up.

Hasan Mustafa: There is an inverted yield curve right now where the short end is more expensive and borrowers to some extent are paying the price for asking for money at very short notice and in very large amounts. But if you look at the term side of it, these are the same borrowers who borrowed term funding at X basis points and now they are paying X plus 100 for a 12-month facility. Banks have learnt from the mistakes that were made in 2007 and 2006, where we were doling out cheap bridge financings, hoping that refinancing will happen. That lesson has been learnt. So the banks are now saying, if there is a bridge and if the take-out is the bond, then the bridge needs to be correlated to the bond side of it.

Benjamin Binetter: The fact that the few bridge loans in 2007 were priced to the entire economics of the transaction, which then did not materialise. Clearly that is an issue, because you block your balance

sheet with substantial amounts that aren’t duly remunerated.

In the past, the investment

banks would hedge bridging loans via CDS markets, but the cost of that now is huge, even if there is a market there.

James Nisbet: It is difficult to hedge at the moment as well. In the past, the investment banks would hedge bridging loans via CDS markets, but the cost of that now is huge, even if there is a market there at all. So if you do a big bridge for Gazprom or something, in the past you might have just hedged it but that is no longer an option. So you can’t sell it in secondary, you can’t hedge it, you just have to sit it on your balance sheet. It is again a weighing up; is it worth actually putting the cost of capital into play on a $100m bridge, or doing something else that could actually get you a much better return and maybe get you league table status by

arranging a few other deals? Again, you do not get any status for a bridge loan. It is just a bridge, it does not even get advertised. So what really is the value of bridges, particularly if you do not know what is going to be happening at the other end? It is one thing if you know there is going

to be a bond take-out or an IPO that you can make good money on, then that’s one thing, but in this market you simply do not know that. So it is all very open-ended, and I think that is what is causing concern with the bridge financing area.

IFR: So on pricing where does that leave us? Have we found a new level or is it going to continue to rise?

Christian Eberl, UniCredit Market & Investment Banking: I think it will continue. As Hasan said, just given the huge supply, I think just each transaction has to set the new pricing level for the transaction because you do not just see the credit and the structure itself, you have to benchmark it directly before launch of syndication with several of these deals coming to the markets at the right time because you have competing transactions in the market right now. Also borrowers, which may not be in imminent need to come to market as they do not have maturing loans for example within the next two or three months, are starting to get nervous saying okay, well, there is a big pipeline building up, should I start looking in trying to raise new funds and

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