When the financial crisis hit in 2008 and international banks withdrew from lending to emerging market credits, it was domestic banks that stepped in to fill the void in Russia. Since then, the EM loan market — and particularly in Russia — has recovered well, with around 20 international banks competing with each other to lend into the region.
The domestic banks have not retreated, however, and they are now carving out a place for themselves in internationally syndicated deals.
Russia’s Sberbank has joined international banks to provide Rusal with a $4.75bn refinancing loan. It has also teamed up with Deutsche Bank to lead a deal for Ukrainian credit Ukrlandfarming. VTB Capital, meanwhile, is joint bookrunner on a deal for London listed oil credit Afren.
Competition is robust, with steep falls in margins since 2009 and borrowers pushing their lending groups on everything from ticket sizes to covenants. But the eurozone crisis has proved that the domestic problems of international lenders expose emerging market borrowers to the political fluctuations of the European Union. Intesa Sanpaolo, for example, dropped out of a $1bn loan for Gazprombank because its own dollar funding costs proved too high to justify participating in a loan that only offered a margin of 150bp.
Gazprombank had no problem replacing Intesa — it recruited two new international banks. But it was a timely reminder that, should the worst happen again, emerging market borrowers may not be able to rely on international banks.
The eurozone crisis has hit liquidity in the market and the big tickets on offer from Russia’s huge state-controlled banks are needed on the largest deals. European lenders are still being squeezed on dollar financing so they will welcome the large tickets domestic banks are chipping in.
Sberbank and VTB have demonstrated their determination to be important players in emerging market loans. Able to offer longer tenors and bountiful rouble financing, they have clear advantages over their international competitors.
But the new mandates prove that they want to go beyond this. And that is good news for borrowers and the market alike.