Leading corporate debt experts warned this weekend that companies and lenders in central and eastern Europe (CEE) were in danger of repeating the mistakes they made during the financial crisis.
Karsten Heilemann, director in restructuring at KPMG in Russia and the CIS, told Emerging Markets that international bank lenders were rushing back to woo companies that a year ago were having to restructure their debt.
“Lessons have not been learned and it is the same as before,” Heilemann said, adding that even during restructuring processes he had witnessed banks “not behaving as hard as they should”, with future funding business in mind.
In Russia, two of the major debt companies involved in debt restructurings with foreign lenders last year – aluminium producer Rusal and metals and mining group Mechel – are already eyeing the both the bond and loan markets respectively.
Addressing a seminar on corporate revival in the region, Heilemann also stressed that banks, “smelling big business”, were sometimes providing money with no security, and in the knowledge that corporate governance principle were often wanting. “They have done it before, they will do it again,” he said.
But Brendan Massan, executive director in JPMorgan’s CEE leveraged and liability management team, said he believed that banks had learned some lessons, and were more wary of lending than before. He agreed that appetite from bond investors for Russian and emerging market debt was as strong as ever. “The market is back,” he said.
He added that there was a much bigger focus on the function of companies’ chief financial officers (CFOs), and a greater emphasis on “good management”. “There is a vast divergence between companies that have Western-style CFO functions and those that don’t,” he added.
But while Massan described corporate restructurings as “last year’s story”, Heilemann told Emerging Markets that there were still many happening under the radar in Russia. These include amendments to restructurings completed in 2009.
Kamen Zahariev, corporate recovery director at the EBRD, with responsibility for its portfolio of impaired assets in CEE and the CIS, said there had been some behavioural changes on companies’ part, in that they were now queuing up for “long term loans from the EBRD.”
A combination of short term borrowing for long term capex projects, amounting to problems of asset liability management, had been one of the biggest triggers of many companies’ downfall in the last two years, Zahariev added. But he said that in the long term there were regulatory issues to be ironed out, including creating better tax and insolvency systems and good corporate governance.
Worries also surfaced that companies, completely unprepared for it the first time, had not fully recovered from the financial crisis, with several officials echoing the view that borrowers had gone for “squeeze and stretch” solutions to their debt problems, rather than radically changing their mode of operation.
“Restructuring debt is not the final solution, and it’s sometimes a case of buying time until the economy picks up,” warned Zelko Peric, chief executive officer of Croatian company Caper.