Syndicated loans for emerging markets borrowers are being threatened by increased bank funding costs arising from the euro zone crisis, lenders said on Wednesday.
The sovereign debt crisis has boosted dollar funding costs, which is reducing demand from smaller banks to join loans and causing a number of arranging banks to review their lending strategy, bankers said.
"We're starting to see a few things around the world not selling as we thought they would," a senior loan syndicator said.
Dollar-denominated emerging markets loans are most vulnerable to rising bank funding costs, such as Bharti Airtel's <BRTI.BO> $8.5 billion loan backing its acquisition of African operations from Kuwait's Zain <ZAIN.KW>.
Bharti has its money but increased dollar funding costs mean that the 11 underwriting banks will struggle to sell the loan in syndication, several bankers said. [ID:nTOE64R070]
Some smaller lenders cannot currently source dollars, while others are paying premiums of up to 150 basis points, which cancels out interest income and makes lending uneconomic, several bankers said. Bharti's underwriting banks expected to reduce their commitments to $600 million from $900 million by syndicating the loan to smaller banks but will now have to seek permission to hold the larger amount until the bond market revives, the bankers added.
"The banks will have to do it (Bharti's loan) as a final take and live with it until the bond market comes back," the first banker said.
PROBLEM SPREADS TO EUROS
Hungary's warning of a Greece-style debt crisis could affect attempts by its most active loan borrower — oil and gas group MOL <MOLB.BU> — to reprice a 525 million euro-denominated ($704 million) forward start loan, bankers said.
Hungarian companies have $15.5 billion of syndicated loans outstanding, with $3 billion scheduled to mature this year, including another $2.1 billion loan for MOL, according to Thomson Reuters LPC data.
Hungary's admission could weaken MOL's negotiating position as it attempts to cut pricing on the loan, which is due to come into effect in October 2010, bankers said.
Banks were discussing the possible impact on the loan's pricing and syndication on Wednesday as the sovereign debt crisis intensified. "It (MOL's loan) would be very cheeky to do now and might not go down too well. It will be an interesting micro test," the first banker said.
Fears over Hungary's debt are also hitting lender appetite for a number of euro-denominated Eastern European bank loans that are currently in syndication in the loan market, bankers said.
Hungary's OTP Bank <OTPB.BU> is in the market with a 200 million euros loan, while Slovenia's Banka Celje and Abanka <ABKN.LJ> are also in the market with loans of 50 million euros and 140 million euros, respectively. [ID:nLDE64J1YL] [ID:nRLP02035a] [ID:nRLP99826a]
"In Hungary, there is contagion and it will hit deals out there," a second banker said.
"We've already seen it on the Abanka transaction — commitments came in early but have now slowed — people are treating financial institutions with more care now, especially in Southern Europe," he added.
Hungary has a relatively small presence in Europe's syndicated loan market, and its companies made up just 0.7 percent of European Union borrowing at the height of the boom in 2007, according to TRLPC.
Hungary has another $1.2 billion of international syndicated loans maturing in 2011, and $1.4 billion is due to mature in 2012, the data said. (Additional reporting by Alasdair Reilly, editing by Will Waterman) ($1=.7453 Euro)
