Yapi Kredi, a well-connected Turkish bank, is still in negotiations with lenders about the pricing on its latest one year refinancing loan. The fact that the issue of pricing was not put to bed immediately is surprising. The top tier Turkish banks have a well established tradition of matching the all-in margin set by Akbank — which is usually the first to come to market.
Sure enough, this summer saw Akbank manage to cut the margin on its one year refinancing deal to 100bp all-in, down from 110bp in a deal in March and 130bp in August 2010. Margin compression on Turkish bank deals is a familiar process for loans bankers, so the price direction didn’t raise too many eyebrows.
But as dollar funding costs for European banks soared and share prices tumbled, some bankers did question whether Akbank’s deal — and subsequent loans for Vakifbank and Isbank that matched the 50bp margin and 50bp fee split — would raise enough commitments.
In the event, they did, and bankers freely admit that the lenders' fight back against tight pricing is pretty tame — certainly when it comes to the top names. It is relatively easy for Turkey's big banks to apply pressure by reminding banks of the benefits of retaining a relationship.
Another factor in Yapi's favour — and another reason why it is likely to be able to match Akbank's margin — is that it is majority owned by Koc Holdings and UniCredit. Turkish conglomerate Koc is an important name and will expect lenders to support its banking subsidiary.
But for the next rank of Turkish banks, the story is not so simple. They will have a more difficult time convincing their relationship lenders that their more limited ancillary business offerings justify a cut in their borrowing costs while the funding costs for lenders soar.
Denizbank and Sekerbank are both expected to approach the loan market this quarter. Sekerbank has an $89m facility maturing in December. It paid a margin of 90bp for the facility last year.
It’s not clear where pricing will come out on Denizbank’s $650m one year loan. The previous facility offered a margin of 70bp and matures on October 1. Denizbank, rated Ba3 by Moody’s and BBB- by Fitch, is rated almost the same as Yapi Kredi, rated Ba3/BB/BBB-. In its September 2010 loan, Yapi Kredi paid 5bp more than Denizbank.
The battle lines between borrowers and banks are becoming clearer. But it is also clear that it is the smaller borrowers that will end up bearing the brunt of lenders' resistance.