Description
PROJECT ON SYNDICATE LOAN MARKET
Overview of syndicated loan
Syndicated loan market in Europe &Russia
BWBB 5043: Credit and Syndicated Loan Management
The Syndicated Loan Market
definitions and sizing Russia and Europe’s experience Transforming the Syndicated Loan Market
PREPARED FOR: CIK JULAILA JOHARI PREPARED BY:
Hajaj S. M. Foujo
Ahmed K. M. Madi Bannapov Feruzbek
801468
801131 805873
March 14, 2010 – Page 0
Hocine Boughezala Hamad 802042
contents
1
2
Overview of syndicated loan Syndicated loan market in Europe &Russia Transforming the Syndicated Loan Market Conclusion
3
4
May 2006 – Page 1
Overview of syndicated loan
- Definition and sizing - vision syndicated loan market - characteristics of old and new loan market
May 2006 – Page 2
Syndicated Loans
A loan provided by a group of banks Single loan agreement, common terms and conditions One or more arranging banks (‘Mandated Lead Arranger’ or ‘MLA’) Q. What is a syndicated loan? Various roles are divided between the MLAs: • Book runner • Underwriting bank • Documentation bank • Information memorandum bank • Signing bank • Agent bank Each participant bank may commit a different amount, reflected in the title Structures cover a wide variety of options (e.g. plain vanilla, property finance, acquisition finance)
Q. What factors determine which borrowers can access the syndicated loan market?
Size
Significance nationally & internationally
Creditworthiness Industry sector
March 14, 2010 – Page 3
Syndicated Loans (cont’d)
Q. How does a Borrower access the Syndicated Loan Market
Discuss funding requirements with potential arrangers Decide on best way to meet these requirements Ask for bids or indications Select the most suitable bid and appoint arranger Assist arranger with syndication process
Each Loan is different Revolver/ Term Loan Extended drawdown Q. What is the Bullet/amortising Structure of a Early repayment typical Syndicated Loan Multi-currency Secured/unsecured Multi-tranche
Q. Who are the lenders in the syndicated loan market
International and local banks Insurance companies Hedge funds, relatively new to the market, very aggressive
March 14, 2010 – Page 4
Sample syndication timetable
Pre-launch Syndication
2 weeks
1 week
2 weeks
1 week
1 week
• Credit process • Negotiate term sheet & mandate letter • Mandate awarded
• Agree bank list
• Commitment s received
• Negotiate
documentation
• Prepare information package
• Launch of syndication
• Agree documentation with participants
• Signing
March 14, 2010 – Page 5
Deal partners
Internal: risk management • Locally: SCO • Centralised: credit committees
Internal: clients • Relationship Management • Structured Finance • Acquisition Finance Internal: agency Interface between the borrower and the syndicate. For ING based in London and Amsterdam
Syndicated Finance
External: borrowers Face to face meetings with clients to support internal teams External: lawyers Draft detailed facility documentation
External: investors Potential participants in ING arranged deals
March 14, 2010 – Page 6
May 2006 – Page 7
March 14, 2010 – Page 8 May 2006 – Page 8
March 14, 2010 – Page 9 May 2006 – Page 9
March May 2006 14, 2010 – Page – Page 10 10
A typology of syndicated loan
March 14, 2010 – Page 11
Sample CLO transaction structure
March 14, 2010 – Page 12
March May 2006 14, 2010 – Page – Page 13 13
Syndicated loan market in Europe &Russia
Sources :Syndicated Finance ING Bank London
May 2006 – Page 14
•
The syndicated loan market in CEE, Russia and CIS is a private market. As a consequence, reliable information and statistics about individual transactions and the market overall is difficult to obtain. Various different publicly available sources of information, such as IFR, Euroweek, Loan Pricing Corporation/Reuters, Loanware and Standard & Poors provide information on the market and general trends, although each has a different methodology. As a result of the lack of a centrally coordinated and verified market database, the information provided by these sources may be inconsistent or indeed unreliable.
•
March 14, 2010 – Page 15
Emerging Europe
Dissecting the market
EU CEE Russia and CIS Czech Republic Russian Federation Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Non-EU CEE Albania Bosnia and Herzegovina Bulgaria Croatia Macedonia Romania Serbia and Montenegro Turkey
Slovenia Czech Republic Russian Federation Estonia Latvia Lithuania Belarus Poland Ukraine Slovakia Hungary Moldova Romania Russian Federation
Estonia
Hungary Latvia Lithuania Poland Slovakia Slovenia
Tajikistan Turkmenistan Ukraine Uzbekistan
Kazakhstan
Croatia Bosnia-Herzegovina Serbia and Montenegro Albania
Bulgaria
Georgia
Macedonia Armenia Turkey
Kyrgyzstan Uzbekistan Turkmenistan Tajikistan Azerbaijan
March 14, 2010 – Page 16
Russia and CIS vs Europe Gross Domestic Product (GDP) per capita, PPP
EU
28,000 26,000 24,000 22,000 20,000
European Union Slovenia Czech Republic Estonia Hungary Slovakia Lithuania Latvia Poland Croatia Bulgaria Romania Macedonia Bosnia & Herzegovina Albania Serbia & Montenegro Russia Kazakhstan Belarus Ukraine Turkmenistan Armenia Azerbaijan Georgia Moldova Uzbekistan Kyrgystan Tajikistan
EU CEE
GNI per capita (US$)
18,000 16,000
Non EU CEE
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Russia and CIS
Source: CIA World Fact Book
March 14, 2010 – Page 17
Syndicated loan market vs Eurobond market volume
2004 - 2005
90,000 80,000 70,000 60,000
Volume (US$m)
50,000 40,000 30,000 20,000 10,000 0 Loans
2004
Bonds
Loans
2005
Bonds
EU CEE
Non-EU CEE
Russia & CIS
Source: Dealogic Loanware & Bondware
March 14, 2010 – Page 18
Syndicated loan market volume
1996 – YTD 2006
90,000 80,000 70,000 60,000
Volume (US$m)
50,000 40,000 30,000 20,000 10,000 0 1996 1997 1998 1999 2000 2001 2002 2003 Russia & CIS 2004 2005 YTD 2006 EU CEE
Source: Dealogic Loanware, ING analysis
Non-EU CEE
March 14, 2010 – Page 19
Russia & CIS transactions
1996 - YTD 2006 Volume and number of deals
60,000 266 300
50,000
250
40,000
Volume (US$m)
200
Number of deals
148 30,000 178 150
Record volume: 2005 saw the biggest volume to date for Russia and CIS (c.US$ 54bn). The volume in 2005 was over two times bigger than that of 2004 (c. US$21bn)
Loans continue to grow in size, with an average size of US$243 million in 2005, compared to US$148 million in 2004 Volumes very much impacted by large deals Emergence of ‘jumbo’ deals
113 20,000 73 10,000 23 0 1997 1998 1999 2000 Russia 2001 Kazakhstan 2002 29 54
135 100
71 50
0 2003 2004 2005 YTD 2006
Other CIS
March 14, 2010 – Page 20
Russia & CIS transactions
1996 - YTD 2006 Average maturity
8.0
Longer maturity of transactions
Larger number of deals with a maturity of more than 10 years, but still under ECA/EBRD or IFC conditions Russia – tenor for nonstructured loans is usually 13 years, with 5 years tested last year for Gazprom and Russian Railways, followed by Rosneft and MTS State-owned banks are able to borrow for up to 3 years (Russia - VTB, VEB, Sberbank; Kazakhstan – KKB, BTA)
7.0
6.0
Average maturity (yrs)
5.0
4.0
3.0
2.0
1.0
0.0 1997 1998 1999 2000 2001 Kazakhstan 2002 2003 Other CIS 2004 2005 YTD 2006
Russia
March 14, 2010 – Page 21
Russia & CIS transactions
1996 - YTD 2006 Average margin
Borrower’s market
900 800 700 600 500 400 300 200 100 0 1997 1998 1999 2000 2001 Kazakhstan 2002 2003 Other CIS 2004 2005 YTD 2006
Pricing under increasing pressure Margin for state-owned borrowers sets the direction for the market Margin spread between private and public types of borrowers has grown since 2004
Average margin (bps)
Russia
March 14, 2010 – Page 22
Syndicated loan market volume
Russia 1996 - May 2006
Transactions becoming less structured Oil and gas sector deals are still dominant
50,000 45,000 40,000 35,000 164
225 200 175 150
Shift to corporate deals from traditional trade finance deals
Increase in unsecured deals Unsecured lending allowed borrowers form wider industries to access the syndicated loan market Unlike 2004, in 2005 unsecured deals - RNG US$7.5bn, Gazprom US$972m, Sberbank US$1000m and Russian Railways US$600m were among the biggest
Volume (US$m)
30,000 125 25,000 20,000 15,000 10,000 35 5,000 9 0 1996 1997 1998 1999 2000 2001 FI 2002 2003 2004 2005 May-06 Number of deals 0 18 49 41 25 54 89 86 75 46 50 106 100
Number of deals
In Russia within the US$44.6bn total volume, unsecured deals accounted for almost US$16bn, exceeding the total aggregate volume of the market in 2004
Domestic currency earners entered the market
Secured
Unsecured
Multilateral
Note: Multilaterals – financing where country risk is mitigated by involvement of multilateral agencies (EBRD, IFC, OPIC, ECAs, etc.) Source: Dealogic Loanware May 2006, ING Bank
March 14, 2010 – Page 23
Russia: Comparable transactions
2004-2006 Rosneft OAO Feb-06 US$2,000m
Trade finance, Debt Repayment
Gazprom OAO May 2006 US$1,526m
Refinancing
MTS Apr-06 US$1,330m
General Corporate
TNK-BP Feb-05 US$1,000m
Working Capital
VTB May-2006 US$600m
General Corporate
5y
4y
3y/5y
80bps / 100bps y13,115bps y4-6
9m
3y 37.5bps
65bps
55bps
55bps
Rosneft OAO Oct-05 US$2,000m
Trade finance, Debt Repayment
Gazprom OAO May-05 US$972m
Trade finance, Debt Repayment
MTS Sep-04 US$600m
Debt Repayment
TNK-BP Nov-05 US$500m
General corporate
VTB Apr-05 US$450m
Trade Finance
5y 180bps
3y3m / 5y 125bps / 150bps
3y 250bps
3y 70bps
3y 120bps
Source: Dealogic Loanware
March 14, 2010 – Page 24
Has the price found its bottom?
• Prevailing in the last 18-24 months • Witnessed in all segments of CEE/CIS market • Very few defaults • Returns are driven down by excess liquidity • Underwriters are trying to offload risk as soon as possible • ‘Conservative’ syndication strategies applied for most deal – senior and general syndication stage • ‘MLA’ titles given in syndication • ‘Relationship’ syndications • Sub-underwritings become rarer • Limitations of ‘market flex’ – the bond market principle ‘can sell anything at a price’ does not apply
Few ‘Blue Chip’ borrowers Competition from capital markets, local banks Excess local liquidity
Insufficient deal flow
MARKET DRIVERS
Entry of new investors into the market Increasing competition between arrangers
Refinancing before maturity Big deals clubbed
March 14, 2010 – Page 25
Why do we keep doing it?
Difficult deals still get done
1. Returns still attractive
Internal return models adjusted Countries’ risk upgraded Still existing premium over Western Europe / other emerging markets
5. ‘Turf’ war Client defining exercise Defensive – protect existing client relationship Aggressive – client winning exercise Market share League tables Credentials Future business in the country/region Future business in the sector 6. Spin-off opportunities ‘Pay to play’ Investment banking/corporate finance/debt and equity capital markets Cash management
2. Additional income
Currency conversion Account opening / Deposit / Overnight placement 3. Follow up transactions Refinancing Positioning for more attractive business, e.g. larger and more lucrative M&A 4. Access to Group companies Subsidiary / affiliate finance Similar companies in the sector
Payroll solutions
Staff benefits
March 14, 2010 – Page 26
Outlook for 2006
Russia • At current growth rate, the size of the market will double in two years • New borrowers will enter the market driven by attractiveness of the syndicated loan market • Investor inflow will continue – driven by still attractive yields and low recent default rates • Fragile market – ‘a single ‘failed’ deal can shake market confidence • Arranging banks will look for new borrowers; move to 2nd tier • Growth of event-driven deals, including sponsor-driven LBOs • Relationship-defining syndications and local currency syndications • Syndicated loan market – substitution for volatile DCM •Top names will follow the ‘longer tenor’ trend Rest of CIS • Shift away from secured deals • Industry diversity • Returns for investors likely to be lower, but still remain attractive
March 14, 2010 – Page 27
Transforming the Syndicated
Loan Market
A White Paper to the Industry – September 2008 by The Depository Trust & Clearing Corporation (DTCC)
May 2006 – Page 28
Introduction
• The syndicated loan market has shown expansive growth in the past several years, reaching a global volume of more than $4.5 trillion in 2007, an increase of 13% over 2006 and 32% over 2005.
The largest market was the United States, with $2.1 trillion in loan activity, an increase of more than 20% over 2006. The second largest market was the United Kingdom, with $376.3 billion in syndicated lending.
•
•
May 2006 – Page 29
Cont’d...
• Secondary trading in the market has also grown significantly in the U.S., with an estimated 92% increase in trading volumes in 2007 over 2006. The processing of syndicated loans is hampered by manual processes, outdated communications and an absence of industry-wide standards.
•
May 2006 – Page 30
The Depository Trust & Clearing Corporation (DTCC)
is working closely with an advisory committee of leading global banks, including The Bank of New York Mellon, Barclays Capital, Citi, Deutsche Bank and The Royal Bank of Scotland to introduce technology and solutions to address the processing and recordkeeping challenges that persist in this market.
May 2006 – Page 31
The Historical Demand for Syndicated Lending
? The syndicated loan industry, comparatively minuscule before the early 1970s, grew explosively after the oil crisis of 1973. As petroleum prices soared, banks amassed deposits from oil-exporting countries and funneled them out in syndicated loans to oil-importing countries ? By 2003, new deals had soared to $1.6 trillion globally, roughly 10 times the total a decade earlier. ? The syndicated loan market grew spectacularly over the next few years, especially in 2006 and 2007, due in large part to the vast liquidity in the markets and a sharp increase in leveraged investing. In 2007 alone, worldwide syndicated loan volume totaled a record $4.5 trillion, up 13% over 2006.
May 2006 – Page 32
May 2006 – Page 33
Current and Long-Term Opportunities
The global credit tightening that began around mid- 2007 has affected the primary market in syndicated lending, as it has affected almost every sector of the loan marketplace. In the U.S., for instance, first-half volume in 2008 was down 51% when compared to the first half of 2007. Global syndicated lending for the first half of 2008 reached $1.3 trillion, representing a 47% decrease from the first half of 2007.
May 2006 – Page 34
Automation Initiatives for the Syndicated Loan Market
In the first quarter of 2008, DTCC announced it was developing a new and evolving suite of services called Loan/SERV that would help automate and streamline the processing of syndicated commercial loans. DTCC will introduce two specific services in 2008, including: • Loan/SERV Reconciliation Service. • Loan/SERV Messaging Service.
May 2006 – Page 35
May 2006 – Page 36
May 2006 – Page 37
The Loan/SERV suite of services will introduce increased automation to the industry in several ways such as
? ? ? ?
Bring standardized loan. Reduce position breaks. Reduce cash breaks. Help reduce trade settlement delays caused by inaccurate recordkeeping.
? Reduce fax-based communications.
May 2006 – Page 38
Position and Cash Breaks
Position breaks happen when records of loan commitment balances registered by the agent differ from those recorded by lenders. Such occurrences are not uncommon because lenders and agents keep completely separate records, and the problem has grown increasingly troublesome with the growth of the syndicated loan market. Through such improvements, Loan/SERV will create more efficient and less risky loan syndication operational processes. This will reduce position and cash breaks, make the flow of information less error-prone and help move the industry towards its goal of closing secondary trades seven days after trade date in the U.S. and 10 days in Europe.
May 2006 – Page 39
Standardization of Transaction Language
Loan/SERV will help bring efficient syndicated loan communications, in part by embracing FpML (Financial products Markup Language), the industry- standardized ecommerce language. FpML is well-tested in over-the-counter derivative-trading markets, where it was constructed to combine speed, usability and security.
May 2006 – Page 40
Conclusion
? DTCC will continue to follow the model of its successful Deriv/SERV product line and, like Deriv/ SERV, Loan/SERV will grow the market while helping to manage operational risk. Loan/SERV addresses the fundamental issues in both the U.S. and European syndicated loan markets by offering automation initiatives. Help reduce position breaks by adopting automation to track, report and update position changes daily. Help reduce related cash breaks. Replace outdated fax-based communications with a Web-based interface linked to a central platform. Employ standardized loan servicing language with the adoption of FpML.
? ? ? ?
May 2006 – Page 41
March 14, 2010 – Page 42
doc_351108253.ppt
PROJECT ON SYNDICATE LOAN MARKET
Overview of syndicated loan
Syndicated loan market in Europe &Russia
BWBB 5043: Credit and Syndicated Loan Management
The Syndicated Loan Market
definitions and sizing Russia and Europe’s experience Transforming the Syndicated Loan Market
PREPARED FOR: CIK JULAILA JOHARI PREPARED BY:
Hajaj S. M. Foujo
Ahmed K. M. Madi Bannapov Feruzbek
801468
801131 805873
March 14, 2010 – Page 0
Hocine Boughezala Hamad 802042
contents
1
2
Overview of syndicated loan Syndicated loan market in Europe &Russia Transforming the Syndicated Loan Market Conclusion
3
4
May 2006 – Page 1
Overview of syndicated loan
- Definition and sizing - vision syndicated loan market - characteristics of old and new loan market
May 2006 – Page 2
Syndicated Loans
A loan provided by a group of banks Single loan agreement, common terms and conditions One or more arranging banks (‘Mandated Lead Arranger’ or ‘MLA’) Q. What is a syndicated loan? Various roles are divided between the MLAs: • Book runner • Underwriting bank • Documentation bank • Information memorandum bank • Signing bank • Agent bank Each participant bank may commit a different amount, reflected in the title Structures cover a wide variety of options (e.g. plain vanilla, property finance, acquisition finance)
Q. What factors determine which borrowers can access the syndicated loan market?
Size
Significance nationally & internationally
Creditworthiness Industry sector
March 14, 2010 – Page 3
Syndicated Loans (cont’d)
Q. How does a Borrower access the Syndicated Loan Market
Discuss funding requirements with potential arrangers Decide on best way to meet these requirements Ask for bids or indications Select the most suitable bid and appoint arranger Assist arranger with syndication process
Each Loan is different Revolver/ Term Loan Extended drawdown Q. What is the Bullet/amortising Structure of a Early repayment typical Syndicated Loan Multi-currency Secured/unsecured Multi-tranche
Q. Who are the lenders in the syndicated loan market
International and local banks Insurance companies Hedge funds, relatively new to the market, very aggressive
March 14, 2010 – Page 4
Sample syndication timetable
Pre-launch Syndication
2 weeks
1 week
2 weeks
1 week
1 week
• Credit process • Negotiate term sheet & mandate letter • Mandate awarded
• Agree bank list
• Commitment s received
• Negotiate
documentation
• Prepare information package
• Launch of syndication
• Agree documentation with participants
• Signing
March 14, 2010 – Page 5
Deal partners
Internal: risk management • Locally: SCO • Centralised: credit committees
Internal: clients • Relationship Management • Structured Finance • Acquisition Finance Internal: agency Interface between the borrower and the syndicate. For ING based in London and Amsterdam
Syndicated Finance
External: borrowers Face to face meetings with clients to support internal teams External: lawyers Draft detailed facility documentation
External: investors Potential participants in ING arranged deals
March 14, 2010 – Page 6
May 2006 – Page 7
March 14, 2010 – Page 8 May 2006 – Page 8
March 14, 2010 – Page 9 May 2006 – Page 9
March May 2006 14, 2010 – Page – Page 10 10
A typology of syndicated loan
March 14, 2010 – Page 11
Sample CLO transaction structure
March 14, 2010 – Page 12
March May 2006 14, 2010 – Page – Page 13 13
Syndicated loan market in Europe &Russia
Sources :Syndicated Finance ING Bank London
May 2006 – Page 14
•
The syndicated loan market in CEE, Russia and CIS is a private market. As a consequence, reliable information and statistics about individual transactions and the market overall is difficult to obtain. Various different publicly available sources of information, such as IFR, Euroweek, Loan Pricing Corporation/Reuters, Loanware and Standard & Poors provide information on the market and general trends, although each has a different methodology. As a result of the lack of a centrally coordinated and verified market database, the information provided by these sources may be inconsistent or indeed unreliable.
•
March 14, 2010 – Page 15
Emerging Europe
Dissecting the market
EU CEE Russia and CIS Czech Republic Russian Federation Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Non-EU CEE Albania Bosnia and Herzegovina Bulgaria Croatia Macedonia Romania Serbia and Montenegro Turkey
Slovenia Czech Republic Russian Federation Estonia Latvia Lithuania Belarus Poland Ukraine Slovakia Hungary Moldova Romania Russian Federation
Estonia
Hungary Latvia Lithuania Poland Slovakia Slovenia
Tajikistan Turkmenistan Ukraine Uzbekistan
Kazakhstan
Croatia Bosnia-Herzegovina Serbia and Montenegro Albania
Bulgaria
Georgia
Macedonia Armenia Turkey
Kyrgyzstan Uzbekistan Turkmenistan Tajikistan Azerbaijan
March 14, 2010 – Page 16
Russia and CIS vs Europe Gross Domestic Product (GDP) per capita, PPP
EU
28,000 26,000 24,000 22,000 20,000
European Union Slovenia Czech Republic Estonia Hungary Slovakia Lithuania Latvia Poland Croatia Bulgaria Romania Macedonia Bosnia & Herzegovina Albania Serbia & Montenegro Russia Kazakhstan Belarus Ukraine Turkmenistan Armenia Azerbaijan Georgia Moldova Uzbekistan Kyrgystan Tajikistan
EU CEE
GNI per capita (US$)
18,000 16,000
Non EU CEE
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Russia and CIS
Source: CIA World Fact Book
March 14, 2010 – Page 17
Syndicated loan market vs Eurobond market volume
2004 - 2005
90,000 80,000 70,000 60,000
Volume (US$m)
50,000 40,000 30,000 20,000 10,000 0 Loans
2004
Bonds
Loans
2005
Bonds
EU CEE
Non-EU CEE
Russia & CIS
Source: Dealogic Loanware & Bondware
March 14, 2010 – Page 18
Syndicated loan market volume
1996 – YTD 2006
90,000 80,000 70,000 60,000
Volume (US$m)
50,000 40,000 30,000 20,000 10,000 0 1996 1997 1998 1999 2000 2001 2002 2003 Russia & CIS 2004 2005 YTD 2006 EU CEE
Source: Dealogic Loanware, ING analysis
Non-EU CEE
March 14, 2010 – Page 19
Russia & CIS transactions
1996 - YTD 2006 Volume and number of deals
60,000 266 300
50,000
250
40,000
Volume (US$m)
200
Number of deals
148 30,000 178 150
Record volume: 2005 saw the biggest volume to date for Russia and CIS (c.US$ 54bn). The volume in 2005 was over two times bigger than that of 2004 (c. US$21bn)
Loans continue to grow in size, with an average size of US$243 million in 2005, compared to US$148 million in 2004 Volumes very much impacted by large deals Emergence of ‘jumbo’ deals
113 20,000 73 10,000 23 0 1997 1998 1999 2000 Russia 2001 Kazakhstan 2002 29 54
135 100
71 50
0 2003 2004 2005 YTD 2006
Other CIS
March 14, 2010 – Page 20
Russia & CIS transactions
1996 - YTD 2006 Average maturity
8.0
Longer maturity of transactions
Larger number of deals with a maturity of more than 10 years, but still under ECA/EBRD or IFC conditions Russia – tenor for nonstructured loans is usually 13 years, with 5 years tested last year for Gazprom and Russian Railways, followed by Rosneft and MTS State-owned banks are able to borrow for up to 3 years (Russia - VTB, VEB, Sberbank; Kazakhstan – KKB, BTA)
7.0
6.0
Average maturity (yrs)
5.0
4.0
3.0
2.0
1.0
0.0 1997 1998 1999 2000 2001 Kazakhstan 2002 2003 Other CIS 2004 2005 YTD 2006
Russia
March 14, 2010 – Page 21
Russia & CIS transactions
1996 - YTD 2006 Average margin
Borrower’s market
900 800 700 600 500 400 300 200 100 0 1997 1998 1999 2000 2001 Kazakhstan 2002 2003 Other CIS 2004 2005 YTD 2006
Pricing under increasing pressure Margin for state-owned borrowers sets the direction for the market Margin spread between private and public types of borrowers has grown since 2004
Average margin (bps)
Russia
March 14, 2010 – Page 22
Syndicated loan market volume
Russia 1996 - May 2006
Transactions becoming less structured Oil and gas sector deals are still dominant
50,000 45,000 40,000 35,000 164
225 200 175 150
Shift to corporate deals from traditional trade finance deals
Increase in unsecured deals Unsecured lending allowed borrowers form wider industries to access the syndicated loan market Unlike 2004, in 2005 unsecured deals - RNG US$7.5bn, Gazprom US$972m, Sberbank US$1000m and Russian Railways US$600m were among the biggest
Volume (US$m)
30,000 125 25,000 20,000 15,000 10,000 35 5,000 9 0 1996 1997 1998 1999 2000 2001 FI 2002 2003 2004 2005 May-06 Number of deals 0 18 49 41 25 54 89 86 75 46 50 106 100
Number of deals
In Russia within the US$44.6bn total volume, unsecured deals accounted for almost US$16bn, exceeding the total aggregate volume of the market in 2004
Domestic currency earners entered the market
Secured
Unsecured
Multilateral
Note: Multilaterals – financing where country risk is mitigated by involvement of multilateral agencies (EBRD, IFC, OPIC, ECAs, etc.) Source: Dealogic Loanware May 2006, ING Bank
March 14, 2010 – Page 23
Russia: Comparable transactions
2004-2006 Rosneft OAO Feb-06 US$2,000m
Trade finance, Debt Repayment
Gazprom OAO May 2006 US$1,526m
Refinancing
MTS Apr-06 US$1,330m
General Corporate
TNK-BP Feb-05 US$1,000m
Working Capital
VTB May-2006 US$600m
General Corporate
5y
4y
3y/5y
80bps / 100bps y13,115bps y4-6
9m
3y 37.5bps
65bps
55bps
55bps
Rosneft OAO Oct-05 US$2,000m
Trade finance, Debt Repayment
Gazprom OAO May-05 US$972m
Trade finance, Debt Repayment
MTS Sep-04 US$600m
Debt Repayment
TNK-BP Nov-05 US$500m
General corporate
VTB Apr-05 US$450m
Trade Finance
5y 180bps
3y3m / 5y 125bps / 150bps
3y 250bps
3y 70bps
3y 120bps
Source: Dealogic Loanware
March 14, 2010 – Page 24
Has the price found its bottom?
• Prevailing in the last 18-24 months • Witnessed in all segments of CEE/CIS market • Very few defaults • Returns are driven down by excess liquidity • Underwriters are trying to offload risk as soon as possible • ‘Conservative’ syndication strategies applied for most deal – senior and general syndication stage • ‘MLA’ titles given in syndication • ‘Relationship’ syndications • Sub-underwritings become rarer • Limitations of ‘market flex’ – the bond market principle ‘can sell anything at a price’ does not apply
Few ‘Blue Chip’ borrowers Competition from capital markets, local banks Excess local liquidity
Insufficient deal flow
MARKET DRIVERS
Entry of new investors into the market Increasing competition between arrangers
Refinancing before maturity Big deals clubbed
March 14, 2010 – Page 25
Why do we keep doing it?
Difficult deals still get done
1. Returns still attractive
Internal return models adjusted Countries’ risk upgraded Still existing premium over Western Europe / other emerging markets
5. ‘Turf’ war Client defining exercise Defensive – protect existing client relationship Aggressive – client winning exercise Market share League tables Credentials Future business in the country/region Future business in the sector 6. Spin-off opportunities ‘Pay to play’ Investment banking/corporate finance/debt and equity capital markets Cash management
2. Additional income
Currency conversion Account opening / Deposit / Overnight placement 3. Follow up transactions Refinancing Positioning for more attractive business, e.g. larger and more lucrative M&A 4. Access to Group companies Subsidiary / affiliate finance Similar companies in the sector
Payroll solutions
Staff benefits
March 14, 2010 – Page 26
Outlook for 2006
Russia • At current growth rate, the size of the market will double in two years • New borrowers will enter the market driven by attractiveness of the syndicated loan market • Investor inflow will continue – driven by still attractive yields and low recent default rates • Fragile market – ‘a single ‘failed’ deal can shake market confidence • Arranging banks will look for new borrowers; move to 2nd tier • Growth of event-driven deals, including sponsor-driven LBOs • Relationship-defining syndications and local currency syndications • Syndicated loan market – substitution for volatile DCM •Top names will follow the ‘longer tenor’ trend Rest of CIS • Shift away from secured deals • Industry diversity • Returns for investors likely to be lower, but still remain attractive
March 14, 2010 – Page 27
Transforming the Syndicated
Loan Market
A White Paper to the Industry – September 2008 by The Depository Trust & Clearing Corporation (DTCC)
May 2006 – Page 28
Introduction
• The syndicated loan market has shown expansive growth in the past several years, reaching a global volume of more than $4.5 trillion in 2007, an increase of 13% over 2006 and 32% over 2005.
The largest market was the United States, with $2.1 trillion in loan activity, an increase of more than 20% over 2006. The second largest market was the United Kingdom, with $376.3 billion in syndicated lending.
•
•
May 2006 – Page 29
Cont’d...
• Secondary trading in the market has also grown significantly in the U.S., with an estimated 92% increase in trading volumes in 2007 over 2006. The processing of syndicated loans is hampered by manual processes, outdated communications and an absence of industry-wide standards.
•
May 2006 – Page 30
The Depository Trust & Clearing Corporation (DTCC)
is working closely with an advisory committee of leading global banks, including The Bank of New York Mellon, Barclays Capital, Citi, Deutsche Bank and The Royal Bank of Scotland to introduce technology and solutions to address the processing and recordkeeping challenges that persist in this market.
May 2006 – Page 31
The Historical Demand for Syndicated Lending
? The syndicated loan industry, comparatively minuscule before the early 1970s, grew explosively after the oil crisis of 1973. As petroleum prices soared, banks amassed deposits from oil-exporting countries and funneled them out in syndicated loans to oil-importing countries ? By 2003, new deals had soared to $1.6 trillion globally, roughly 10 times the total a decade earlier. ? The syndicated loan market grew spectacularly over the next few years, especially in 2006 and 2007, due in large part to the vast liquidity in the markets and a sharp increase in leveraged investing. In 2007 alone, worldwide syndicated loan volume totaled a record $4.5 trillion, up 13% over 2006.
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Current and Long-Term Opportunities
The global credit tightening that began around mid- 2007 has affected the primary market in syndicated lending, as it has affected almost every sector of the loan marketplace. In the U.S., for instance, first-half volume in 2008 was down 51% when compared to the first half of 2007. Global syndicated lending for the first half of 2008 reached $1.3 trillion, representing a 47% decrease from the first half of 2007.
May 2006 – Page 34
Automation Initiatives for the Syndicated Loan Market
In the first quarter of 2008, DTCC announced it was developing a new and evolving suite of services called Loan/SERV that would help automate and streamline the processing of syndicated commercial loans. DTCC will introduce two specific services in 2008, including: • Loan/SERV Reconciliation Service. • Loan/SERV Messaging Service.
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The Loan/SERV suite of services will introduce increased automation to the industry in several ways such as
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Bring standardized loan. Reduce position breaks. Reduce cash breaks. Help reduce trade settlement delays caused by inaccurate recordkeeping.
? Reduce fax-based communications.
May 2006 – Page 38
Position and Cash Breaks
Position breaks happen when records of loan commitment balances registered by the agent differ from those recorded by lenders. Such occurrences are not uncommon because lenders and agents keep completely separate records, and the problem has grown increasingly troublesome with the growth of the syndicated loan market. Through such improvements, Loan/SERV will create more efficient and less risky loan syndication operational processes. This will reduce position and cash breaks, make the flow of information less error-prone and help move the industry towards its goal of closing secondary trades seven days after trade date in the U.S. and 10 days in Europe.
May 2006 – Page 39
Standardization of Transaction Language
Loan/SERV will help bring efficient syndicated loan communications, in part by embracing FpML (Financial products Markup Language), the industry- standardized ecommerce language. FpML is well-tested in over-the-counter derivative-trading markets, where it was constructed to combine speed, usability and security.
May 2006 – Page 40
Conclusion
? DTCC will continue to follow the model of its successful Deriv/SERV product line and, like Deriv/ SERV, Loan/SERV will grow the market while helping to manage operational risk. Loan/SERV addresses the fundamental issues in both the U.S. and European syndicated loan markets by offering automation initiatives. Help reduce position breaks by adopting automation to track, report and update position changes daily. Help reduce related cash breaks. Replace outdated fax-based communications with a Web-based interface linked to a central platform. Employ standardized loan servicing language with the adoption of FpML.
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March 14, 2010 – Page 42
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