Hunting for the Dollar

06.10.2011

Syndication market players convened at Cbonds conference to strike the balance of 2011 and share forecasts for the future

The second annual conference of Syndicated Lending - 2011 took place in Moscow on September 28 - 29. This year, more than 200 representatives of foreign banks, Russian financial institutions and borrowers of the real sector, international consulting and legal firms came together under the auspices of Cbonds to discuss the problems and prospects of the syndicated lending market.

The first half of the year proved very successful for the Russian syndication market and offered good opportunities for borrowing using this tool not only to companies of the commodity sector, but to borrowers in other industries as well. However, the on-going correction, so it seems, is bringing the market players back to the situation we witnessed two years ago, when banks were afraid to enter the volatile, risky market, and scaled down their involvement in syndicated transactions.

However, according to representatives of most banks, despite the next wave of the crisis, key syndicate participants will remain in the market, albeit more cautious and selective, carefully considering each transaction.
The banks are not leaving the market, but the commitments they are offering are much more modest. In addition, we see transactions where the pricing is changing. The cost of funding for European banks has soared. Tensions within the syndicates are growing. Terms that are attractive to some participants, are not acceptable to others.
Historically, exporters with currency earnings have been the most active borrowers in the Russian syndication market. That is why the problems with access to dollar liquidity, which all European banks are currently facing, may lead to a serious rise in the cost of financing for Russian corporations.

At the same time borrowers often try to convince the lender to reduce the pricing below market. The conference panelists agreed that in this case international banks are increasingly interested in the factor of additional business they are getting through lending to a particular borrower.

Conference participants noted that one of the trends of the last two years has been increasing activity in this market by Russian state-owned banks, which obtained some experience in syndicated deals though involvement in major loan restructurings of Russian companies. At this stage the biggest problem in interaction between Russian and foreign syndicate members lies in a different cost of funding for the Russian and foreign players. Hence this cooperation will likely evolve in the framework of transactions with complex structure, where the core is formed by Russian banks lending to the company in rubles at a fixed rate, but the syndicate also includes foreign banks granting tranches in alternative currencies at floating rates.

According to conference participants, one of the key objectives for the future is increasing the liquidity of both primary and secondary markets for syndicated lending. In a nutshell, the delegates believe that liquidity could only appear after quality regulatory framework is formed and effective collaboration between Russian and foreign financial institutions is established. Only in this case the market of syndicated lending could become a real competition to alternative instruments such as bonds.