Bank Aval, Ukraine: Trading on Ukraine’s improving profile

MLAs: Deutsche Bank, Raiffeisen Zentralbank Österreich & Raiffeisenbank Ukraine

Borrower: Bank Aval, Ukraine

Deal size: $45m

Tenor: one year

The smart money was always going to be on Ukraine this year – at least for trade financiers who could find security from trading activities while the political uncertainties helped maintain margins. But it was going to need smart banks to make the most of the burgeoning opportunities. And in the case of the trade-related facility for Bank Aval, two of the region’s smartest – Deutsche Bank and Raiffeisen Zentralbank (RZB) – combined to bring off a record-breaking transaction.

The facility, which was initially launched for $25m, was increased to $45m due to a highly successful syndication – at the time of signing the largest ever syndicated loan for a Ukrainian bank (according to Dealogic).

The one-year loan won a margin of 3.8% over Libor with a 12-month extension option.

“The success of the syndication reflects the fact that the Ukrainian market has improved significantly in the past 12 months,” says Ben Dobson, director of global trade finance at Deutsche Bank. “In addition, margins for the top-tier Ukrainian bank loans remain relatively attractive when compared to many other emerging markets, where pricing has fallen and tenors increased. Yet the deal was groundbreaking largely because of its size – beating any previous transaction for a Ukrainian bank borrower, including any deal prior to the 1998 Russian financial crisis.”

The deal brought in 15 participating banks with Deutsche Bank, Raiffeisen Öesterreich and Raiffeisenbank Ukraine acting as joint mandated lead arrangers. Deutsche Bank Trust Company Americas acted as facility agent. Abu Dhabi Commercial Bank, ABN Amro and Commerzbank came in as arrangers, with Dresdner Bank as a co-arranger.

“The number of participants was impressive when compared to other Ukrainian bank syndicated loans, albeit the number was less than you typically see in FI deals in other emerging market countries,” says Dobson. “And it certainly sets out the stall for future Ukrainian transactions, which was very much part of our game plan with respect to this transaction. Ukraine is an important new market opening up and we wanted to show our commitment to it early on. In view of the anticipated continued economic growth and the accelerated reform process under Yuschenko, we expect that top-tier bank deals in 2005 will be larger, with a greater number of lenders, albeit the downside is that pricing is likely to be squeezed. The success of this loan has, we hoped, paved the way for more successful deals in Ukraine this year.”

Bank Aval will use the facility to finance specific trade-related transactions to core customers of the borrower. Some 210,000 corporate clients bank with Bank Aval – reflecting 12 years of operation in the country as well as making the bank one of Ukraine’s leading lenders in terms of its credit investment portfolio.