Borrowers begin to show the strain

  • 05 Sep 2007
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Reverberations from the US subprime crisis have hit the Kazakh loan market, putting pressure on borrowers to sugar terms on their facilities to attract lenders. Even Kazkommerstbank, the market’s sweetheart, has found the going harder in recent weeks. Sarah White reports on a market trying to readjust.

The Kazakh syndicated loan story has something of a pattern to it. The country’s big banks are the mainstay of the Kazakh market, and return every year to the same tune: lower pricing, bigger amounts, longer tenors.

But as turmoil in the wider credit markets, sparked by the panic over the collapse of the US subprime mortgage sector, starts to creep into the loan market, that tune might be about to change for Kazakhstan’s financial institution borrowers.

The emerging markets have hitherto escaped the pain, which has been especially felt in the leveraged loan market, with margins sent spinning wider and deals failing in syndication. And while the effect on the Kazakh market might not be as painful, bankers are expecting trouble ahead.

"Borrowers in eastern Europe who have been able to price their deals very tightly so far will have to start paying a premium if they want to come to market at all," one loans banker in London warns.

If a re-pricing of the loan markets in Russia and the CIS is indeed looming, even regular borrowers such as Kazkommerstbank (KKB) and Bank TuranAlem (BTA), Kazakhstan’s two biggest banks, will start finding their relationship pull is not enough to guarantee a successful deal.

In hot markets, and in fear of missing out on the next big mandate, banks have been willing to lend to emerging market borrowers at ever tighter rates. But this cosy arrangement is in danger of being the next victim of the US subprime mortgage crisis. Loans desks at arranging banks are being given less lending autonomy as credit committees and senior management seek to reduce risk by limiting their exposure to less creditworthy assets.

Transactions launched in July and August have already felt the strain. Halyk Bank has found lenders unreceptive, at least initially, to its latest offering, a $400m facility arranged by Bank of Tokyo-Mitsubishi UFJ, Calyon and Mizuho.

"The deal is struggling to attract commitments, and it has been out for a while now," says an official close to the transaction. Speaking in the week of August 20, the banker added, "it’s being done on a best-efforts basis, and should get done eventually, but so far it has attracted only one participating bank." The situation had not changed as this report went to press.

The deal is split between three year and five year tranches, which pay margins of 40bp over Libor and 65bp respectively. Halyk’s ambition to bring banks into a five year tranche has made cautious investors stay away, say bankers. But it is also a symptom of general weakening confidence, which has started to affect other Kazakh and eastern European deals.

Crisis starts to bite

Even KKB, traditionally one of the most popular Kazakh bank borrowers among lenders, did not reap the results it had anticipated on its latest transaction. Bank of Tokyo-Mitsubishi UFJ, Citigroup, Mizuho and Standard Bank launched a $400m facility for KKB in July, which was increased to $600m and signed on
August 28.

"It was oversubscribed, so on the surface the deal did alright" said a banker close to the deal. "But KKB was hoping to get a lot more interest from the market and raise up to $750m in commitments."

Even in the closing stages of the deal and after it had already raised an oversubscription, a last minute rush to re-arrange allocations on KKB’s loan left mandated lead arrangers with a bitter taste and with the worry that banks reigning back their appetite for emerging market loans was starting to affect Kazakhstan. In the last few days before the loan was signed, Citigroup, one of the MLAs, scaled back its original $100m commitment to the deal, angering some of the other MLAs, who had to increase their own commitments.

KKB, until now the darling of the Kazakh loan market, has always been able to count on strong support from its relationship banks to keep coming back to market and achieving a tighter price every time.

But despite signs that Kazakhstan’s banks are not going to have as easy a ride as they have had recent years, the pressure to increase margins should for now be the only effect felt by borrowers, and is not likely to stifle activity in the loan market completely.

"Standard & Poor’s does not plan to take any immediate rating actions on Kazakh banks as the situation remains manageable and the banks’ fundamentals are still good," says the rating agency’s credit analyst Magar Kouyoumdjian, adding that unless the situation in the global capital markets becomes chronic, S&P expects Kazakh banks to weather the storm.

"Things are likely to worsen before they get better, however. In the short to medium term, such a slowdown would reveal the true extent of asset quality problems. High growth in recent years hid problem loans, as most credits were unseasoned and loans, even problematic ones, could easily be refinanced in a buoyant environment."

Bigger bank club

But regardless of market conditions and their effect in months to come, bank borrowers in Kazakhstan have had reasons to be pleased this year. And so have lenders, which have welcomed new financial institution names to the market.

Lenders have complained in the past about running out of new borrowers to bring to the international market, saying that they had journeyed as far down the credit curve as they were willing to go.

But new names have still come through this year. Financial services group Astana Finance, for one, came to market for the first time in June for $50m, in a deal led by Deutsche Bank. The facility has a one year tenor and pays a margin of 125bp.

Other borrowers which have less well-established relationships with Western lenders have made successful returns, with bankers now hoping this consolidation will help the market survive the credit crisis, with the most detrimental effects only being felt by the smallest and most inexperienced borrowers.

"It’s good to see that the market it not just available to the top tier players," says Natalia Sokolova, a director on the syndicate desk at Standard Chartered in London. "Institutions like Tsesnabank and Nurbank have gone for small but successful transactions.

There are a few constant players who come back for a few deals every year, like KKM or BTA, and there are others, which are quite familiar, like Alliance Bank. But there has been a certain amount of consolidation across the financial institution sector."

Tsesnabank signed a $53m loan in early July, after raising an oversubscription and increasing the facility from $30m. The deal had a 370 day tenor and pays a margin of 200bp. Nurbank tapped the market earlier this year, in March, with a $100m two year loan, paying 165bp.

The struggle ahead for Kazakh banks that do not rank among the top 10 in the country, and that are trying hard to improve their profile in the international syndicated loans market, will be to live up to the pattern other banks before them had taken as a given. On cue, once a borrower had proven itself with a first venture in the market, pricing on their next deal would be cut, and the borrower would try hard to increase the amount.

Tapping the Middle East

Some institutions, such as Alliance Bank, the country’s fifth biggest bank by assets, have returned several times this year, and introduced variations in their borrowing patterns to attract new lenders.

In June, Alliance Bank signed a loan at $400m, after it was increased from $300m. The facility was split into a 370 day tranche, paying a margin of 80bp, and a two year piece priced at 100bp — far below what it paid on its last deal in 2006 where, over three tranches, pricing ranged from 110bp to 130bp.

But the borrower also came to market in March with a $150m murabaha financing, arranged by Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank and Calyon, which was increased from $50m.

"You have to give credit to Kazakh banks, which have sought to increase their investor base by tapping the liquidity into of the Middle Eastern market. It’s a smart move," says Standard Chartered’s Sokolova.

BTA had led the way earlier this year with a more ambitious deal launched at $150m, structured as a wakala restricted with commodity murabaha financing. Barclays Capital, Abu Dhabi Islamic Bank and CIMB Bank arranged the facility.

"In Kazakhstan there aren’t any financial institutions which operate in accordance with Islamic law. BTA has started to move in this direction and we are staking on this for the future," says Sabina Mamedova, a syndicate banker at BTA in Almaty. "Nowadays we are known as an ‘Islamic window’ in the CIS market. For many investors in Asia and the Middle East, participation in our deals was their first interaction with the Kazakh market."

BTA’s Islamic deal was increased from the launch amount and signed at $250m, with 14 banks joining the transaction, four of which were new to Kazakhstan. The borrower also signed a Japanese yen equivalent of a $500m loan in April, targeted at Asian banks.

Corporate deals on the rise

But corporate borrowing in Kazakhstan still operates along very different lines. There is a scarcity of industrial deals, few established relationships between companies and Western banks and transactions come and go at unpredictable intervals. Lending to the corporate sector in Kazakhstan has so far been reflective of the country’s economy, reliant on its extensive resources in oil and gas, but underdeveloped in other areas.

"The Kazakh market is trying hard to diversify," says Sokolova at Standard Chartered. "Developing industries is an important priority, but it’s almost too early to see whether this development is too slow or is growing at the rate it should be."

The success of some of this year’s deals is an encouraging indication that this development is picking up pace.

In April, banks signed into a $1.48bn pre-export finance facility for steel company Eurasian Natural Resources Corp (ENRC), the biggest loan to come from Kazakhstan this year. The transaction, led by ABN Amro, Barclays Capital and Deutsche Bank, was 100% oversubscribed during syndication, and was increased from $1bn.

ENRC is the world’s second biggest producer of ferroalloys, various alloys of iron used in the production of steels. But the country’s mining sector is still not a big user of the international loan market. Oil and gas features as the second biggest industry for loans in Kazakhstan, behind financial institutions, which have a market share of 62.5%.

The oil industry had provided lenders with a few high profile corporate deals this year, including a $1.05bn for KMG Kashagan, a subsidiary of Kazakhstan’s state-owned oil and gas business KazMunaiGaz. The deal is being led by BNP Paribas, Citigroup and Société Générale.

The borrower is a special purpose vehicle, set up to hold KazMunaiGaz’s stake in the North Caspian Project Consortium. Kazakhstan suspended work at the Kashagan oil field in late August, putting pressure on the field’s Western operators, led by Italy’s Eni, over delays and cost overruns. But banks leading the loan said, at the time of going to press, that the news would not affect the facility in any way.

"The deal is already pretty advanced and is oversubscribed," said one official close to the deal.

  • 05 Sep 2007

Global Syndicated Loan Volume

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 Oct 2016
1 JPMorgan 294,801.84 851 11.12%
2 Bank of America Merrill Lynch 283,451.06 898 10.69%
3 Citi 182,365.07 491 6.88%
4 Wells Fargo Securities 150,289.63 648 5.67%
5 Mizuho 138,449.10 621 5.22%

Bookrunners of Middle East and Africa Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 Standard Chartered Bank 4,250.00 19 7.92%
2 Bank of America Merrill Lynch 3,735.30 7 6.96%
3 JPMorgan 3,474.15 7 6.47%
4 Mizuho 2,901.68 10 5.41%
5 SG Corporate & Investment Banking 2,793.33 8 5.20%

Bookrunners of European Leveraged Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 Oct 2016
1 UniCredit 15,780.75 62 10.56%
2 JPMorgan 12,594.51 30 8.43%
3 HSBC 12,277.00 39 8.22%
4 BNP Paribas 9,321.96 66 6.24%
5 Credit Suisse 9,123.47 18 6.11%

Bookrunners of European Marketed Syndicated Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 11 Oct 2016
1 JPMorgan 29,857.48 56 7.03%
2 UniCredit 28,692.62 136 6.76%
3 BNP Paribas 28,364.79 138 6.68%
4 HSBC 22,858.25 111 5.38%
5 ING 18,645.88 118 4.39%

Syndicated Loan Revenue - EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Apr 2016
1 HSBC 35.45 69 6.71%
2 BNP Paribas 31.67 78 5.99%
3 ING 31.21 74 5.90%
4 Citi 22.60 36 4.27%
5 Deutsche Bank 21.89 32 4.14%