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CEEMEA borrowers — Paradise extended

By Michael Turner
27 Aug 2013

Emerging market borrowers should be lining up to tap the loan market. Not only is there plenty of liquidity as this year's volumes scrape the record lows of 2012, but lenders have repeatedly shown their hands by letting clients get away with the sorts of terms treasurers usually can only dream about.

Loan volumes in central eastern Europe, the Middle East and Africa for 2013 so far are $107bn, according to Dealogic. 

While this is up from 2012's abysmal levels, when $84bn of deals were signed by the end of August, African volumes are 46% down year on year at $9.6bn, while Middle East volumes are only $5bn up from last year at $33bn, according to the data firm.

And this year's total volumes includes the one-off $14.2bn second tranche of Rosneft's record-breaking TNK-BP acquisition loan that was signed in February.  

Along with the disappointing numbers is the whiff of desperation as banks bow to borrower demands for fear of missing out on the limited bits of business that are out there.

Whether it's a 25bp cut in all-in pricing for Turkish banks so far this year (with up to 7.5bp more expected to come) or an unsecured deal priced the same as a pre-export finance (PXF) facility for fertiliser producer EuroChem, it seems that all borrowers have to do at the moment is turn up to the loan market, and bankers will offer to toss in their own shoes if it means they'll get to lend. 

Borrowers then, would be foolish to miss the opportunity presented to them, as with each new term agreed and each pricing cut justified, lenders find the shackles that are holding them over that barrel are ever tighter. 

It must be equally tempting and galling for borrowers that didn't have the guts to push harder when they were in the market earlier this year. It makes no sense that investment grade Russian potash firm Uralkali (BBB-) is borrowing on worse terms than sub-investment grade rated EuroChem (BB).

But that's the deal Uralkali agreed when the firm signed its $1bn facility as a PXF with a 215bp margin. Sure, the deal roared home, with commitments topping $1.4bn from a $700m launch amount, but it still had to hurt when Uralkali's chief financial officer saw that EuroChem's loan was both unsecured and priced at 180bp when it launched two months later.

But a word of warning for borrowers: these amazing conditions cannot last forever. If one or two high profile deals fail — as so often happens in the emerging markets — bankers expect the market to quickly shift back in their favour. Maybe a borrower will push just a bit too hard on pricing and fail to hit their full refinancing target, or a corporate down the ratings ladder will struggle to attract lenders to its debut unsecured deal after years of pulling money out of the market with PXFs.

Should this happen, borrowers that have not come to the loan market will have missed their chance, and lenders will relish the opportunity to begin banking real profits again.

By Michael Turner
27 Aug 2013