clace conference - may 2010 the world of loans and structured trade finance…
TRANSCRIPT
Structured Trade Finance
CLACE Conference - May 2010
-What is STF? Back to Business?- Why STF? Square Peg into Round Hole, Longer Tenor/Larger Size, Unchartered Places, Difficult Markets- How to Work with ECAs, Multilaterals- Private Insurance Market – Trade Credit/Brokers- Bankruptcy Remote, Securitizations- Forfaiting, Factoring, Supply Chain Financing- Secondary Markets- Specializations, Access to Market, Flexibility
CLACE Conference - May 2010
What are these ‘worlds’ and how do they differ…??
Trade Finance LoansHandled by Transaction Banking team – large volume of deals per week!!
Handled by Syndications team – modest volume of deals per month
Invariably ‘trade related’ Not necessarily ‘trade related’ – ‘general corporate purposes’ very common
Various types of Letters of Credit (eg, sight, usance, irrevocable, revolving, standby)…
…Receivables facilities also prominent
Main types of Loans: Bilateral, Club or Syndicated…
…close links to Capital Markets
Often 4 parties involved: Applicant, Beneficiary, Issuing Bank, Advising/Negotiating Bank
Number of parties involved could range from 2 to 22 (or more)…
Funding not always required by Banks Term loans almost always funded; Revolving Credit Facilities seldom fully utilized
CLACE Conference - May 2010
Deal sizes can range enormously…
Trade Finance deals tend to range from US$1m to US$ 100m
Loans tend to range from:US$1m to US$100m for ‘bilaterals’, from US$50 to US$250m for ‘club deals’, and from to US$100 to US$1bn for ‘syndications’
…but can be higher!!!
CLACE Conference - May 2010
More specifically…
Volume of World Merchandise Trade: 2006 US$ 11.8 trillion 2007 US$ 13.6 trillion 2008 US$ 15.7 trillion
Global Loan Issuance: 2005 US$ 3 trillion 2006 US$ 3.5 trillion 2007 US$ 4 trillion 2008 US$ 2.25 trillion
CLACE Conference - May 2010
…and in 2009
World Merchandise Trade fell 23% to US$ 12.1 trillion!!
Global Loan Issuance fell 22% to US$ 1.75 trillion!!
…ouch!!
CLACE Conference - May 2010
But there’s hope, I think…
Q1 2010 loan issuance up handsomely year-on-year;WTO economists forecast global trade to rise 9.5% in 2010 – MarchSecondary market activity bubblingInvestors hungry for assetsMargins and yields fallingTenors lengthening
CLACE Conference - May 2010
Or there was until things started to change in Q2 2010…
April 23 – Greek govt requests the EU/IMF bailout package be activated…
CLACE Conference - May 2010
And suddenly things change again…
Market sentiment becomes uneasy
Increase in ‘cost of funding’ (liquidity)
3mth Libor doubled in 2 months!!
CLACE Conference - May 2010
And suddenly things change again…
Market sentiment becomes uneasyIncrease in ‘cost of funding’ (liquidity)3mth Libor doubled in 2 months!!Diminishing confidence all roundHigher yields demanded by lenders/investorsOpportunistic bidding/buying in secondary market
CLACE Conference - May 2010
Regional Overview - AsiaHigh levels of local currency who have strong appetite to lend to familiar namesChinese banks lent aggressively in 2009-2010 (especially in the property sector) - eg, over US$1trn in Jan ’10!! - but this momentum has slowed following recent govt restrictionsElsewhere, steady flow of deals from Australia, Indonesia, Philippines, Singapore and Vietnam;Tenors being pushed …as far as 7yrsNotable commodities deals:
Trafigura Beheer raised US$2.3bn in Mar ‘10 Glencore Int’l raised $10.2bn in May ’10 Vitol Asia/Holding raised $1.3bn in May ’10
‘Landmarks’ deals with LatAm – Chinese and Taiwanese
CLACE Conference - May 2010
Regional Overview – Gulf region
Prominent debt restructurings in the last 2yrs – eg, Kuwaiti investment co.s, Dubai Inc and Dubai World (US$24bn), Saad and Algosaibi (US$22bn), Dolphin Energy (US$4bn)
Balance sheet deterioration – higher NPL’s related to realty
Investors very selective how they deploy their liquidity
3yr tenors are ‘sweet spot’
Explicit guarantees required; no more ‘name lending’
Abu Dhabi and Qatar sovereign success in the bond market – raised US$38bn in 2009, up from US$12bn in 2008
Few sellers offering steep discounts in the secondary market
CLACE Conference - May 2010
Regional Overview - Europe
Substantial number of ‘jumbo’ refi’s in Germany and Spain – over US$100bn each in 2009
‘High grade’ tenors pushed to 5yrs
Borrowing costs drop 50% over last 12mths…
CLACE Conference - May 2010
Regional Overview - Europe
Substantial number of ‘jumbo’ refi’s in Germany and Spain – over US$100bn each in 2009‘High grade’ tenors pushed to 5yrsBorrowing costs drop 50% over last 12mths…‘Technical rebound’ in leveraged loan market in 2009 – top 40 loans soared 30pts (or 50%!!) to 90% of face value – but now see notable sellers and little appetiteLiquidity has become prominent issue again – forced banks to withdraw from primary loansSecondary market activity ‘spotty’
CLACE Conference - May 2010
The market has slowed down…
E M E A P r im a r y L o a n M a r k e t :Q u a r te r l y L o a n V o lu m e
* I n c lu d e s p r o j e c t s , a i r c r a f t & s h i p p in g , in f r a s t r u c t u r e a n d n o n - r a t e d d e a ls o u t s i d e W e s t e r n E u r o p e
* * I n c lu d e s r a t e d d e a ls in E M E A a n d n o n - le v e r a g e d u n r a t e d d e a ls in W e s t e r n E u r o p e , e x c lu d in g a l l s t r u c t u r e d f in a n c e
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H i g h G ra d e ** L e v e ra g e d - B a nk L e v e ra g e d - Ins t i tu t io na l A l l O the r *
S o u r c e : T h o m s o n R e u te r s L P C / D e a lS c a n
CLACE Conference - May 2010
…‘pipeline’ not too promising
E M E A P r i m a r y L o a n M a r k e t :L o a n P i p e l i n e
S o u r c e : T h o m s o n R e u t e r s L P C / D e a l S c a n
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CLACE Conference - May 2010
Regional Overview – Latin America
A relative paradise to the weary!!…Enjoyed fabulous commodities boom; Brazil enjoying a bonanza… …aided by a prudent central bankChile rocked by earthquake but has funds to rebuildMexico sent reeling in 2008 – following US downturn – now ‘on the mend’Top-tier banks and corporates awash with liquidity!!Bond markets undercut and ‘outpaced’ loans in 2009/10Borrowing costs tumbled over last 18mthsTenors being pushed to 3yrs and beyond…