denotes premium content | Dec 5 2008 Trade & Forfaiting Review magazine archive
Volume 7 Issue 1
Editor's foreword
Most news coming out of Russia these days is good. A few high-profile investments by Western energy companies have been reported recently. Royal Dutch/Shell said it would invest US$1bn in Russia’s Salym field with its partner Sibir Energy, and the investment is going ahead even though the company failed to win the tax breaks it wanted. ExxonMobil and ChevronTexaco are reportedly interested in taking a 25% stake in Yukos-Sibneft. Earlier this year BP agreed to a partnership with TNK, striking the largest corporate energy deal in Russia, and Shell got the green light to develop Sakhalin II, clearing the way for the single largest direct investment in the country at US$10bn. And in the capital markets, Gazprom’s £1bn bond, the largest euro deal by an emerging-market corporate issuer, was well received.
Despite short-term volatility associated with the build-up to the Duma elections later this year, the Russian economy continues its upward trajectory. It grew by an estimated 8.7% in August, the biggest jump since November 2000, and the latest preliminary estimates released by the Ministry of Finance reveal 6.9% year-on-year growth over the first seven months of 2003. Moscow Narodny Bank survey data is also generally positive, with the manufacturing Purchasing Managers’ Index registering 53.7 in August, significantly above the no-change level of 50. Things should only get better, especially if a reformist majority is re-elected to the Duma, as expected, and acts to advance Russia’s reform agenda and further enhance its medium-term growth potential.
But good news for Russia is not necessarily good news for Western bankers who have made their money doing structured deals for Russian corporates. There is reason to worry. Once Russia goes investment grade (which will no doubt happen sooner rather than later) and the bond brigade charges in, won’t the big Russian corporates turn their backs on structured trade finance (STF)? The answer is yes and no. Yes, the big oil companies now have more options than they have had in the past and thus don’t need structured deals as frequently or as desperately as they once did. But no, they probably won’t abandon STF altogether given its competitive pricing and successful track record. It is telling that the top two Russian oil companies, Lukoil and Yukos, chose STF for their latest deals.
Most likely, while Russia charges towards investment grade, its corporates will opt for a combination of both capital-markets and STF solutions. What happens after that is anyone’s guess, although the Russian STF market looks set for a slow fizzle-out rather than a spectacular crash-and-burn. In the meantime, smart banks will do two things: make the most of the good times while they last and start turning more attention to other, still emerging markets.
Courtney Fingar is editor of Trade & Forfaiting Review.
Features
Law and disorder
Once coalition forces announced that the war in Iraq was over, there was a surge of enthusiasm from the international business community, which realised the potential for re-building the country and re-opening trade links. Paul Turner, a partner at Clyde & Co in London, assesses the potential value of trade and project-finance opportunities, and the legal challenges associated with them.
Building trade finance from the ground up
Investing in Iraq is not for the faint of heart. The country may have a trade bank and lots of interest from western firms and banks, but creating a viable banking system and proper mechanisms for trade finance is a mammoth task wrought with difficulties. Erika Morphy reports on the latest developments.
Gaining momentum
Despite short-term volatility associated with the build-up to elections at the end of this year, Russian economic growth is estimated to have increased by 8.7% in August – the fastest level of growth seen since November 2000. Paul Timmons, an economist at Moscow Narodny Bank, provides an overview of the latest trends and the driving forces behind current economic developments in Russia.
Beginning of the end, or end of the beginning?
Just a few short months ago, the obituary for Russian structured trade finance was being written; then suddenly this summer, big deals were back. But do they signal a continuance, a revival or just one last hurrah? Courtney Fingar reports.
A bright light in Central Asia
If you’re talking trade finance in Central Asia, Kazakhstan is key – and most of the talk is good, minus the odd complaint about payments and some worries that the situation is not nearly as favourable as it appears from the outside. For the next few years at least, the country looks to remain the region’s safest bet. Courtney Fingar reports.
Getting behind the glossy brochures
In the face of increasingly stringent regulations and a global increase in money laundering and other abuses, former US President Ronald Reagan’s oft-quoted motto ‘trust – but verify’ is not a bad one for trade financiers to follow. Roy Daisley, director of Carratu International, explains the whys and hows of carrying out due-diligence checks on potential clients.
Channelling trade finance
Market dynamics and evolving customer demands are determining how trade-finance technology can simplify and streamline the complexities of cross-border trade. Michael Klausner, senior vice president and head of global marketing for ABN Amro Global Trade & Advisory, explains how trade technology is evolving, and the crucial role of the portal in this evolution.
Regulars
Company profile: Where legal eagles dare
As one of the few law firms to make trade finance a core practice area, Denton Wilde Sapte advises on deals the world over. In a roundtable discussion, partners Geoffrey Wynne and Nicholas Grandage, and senior solicitor Greg Potts offer their views on various emerging markets and trade-finance techniques.
Personal profile: Keeping the pace with PRI
Meet Price Lowenstein, visionary and mastermind behind a seven-year-old Bermudian start-up that has grown to achieve the status of the only ‘net lines’ private political-risk- insurance underwriter in the world. Kathleen Williams speaks to him about his formative years, the intrigue of emerging markets and world affairs, and his goals for Sovereign Risk Insurance.
LTP Trade Finance Index: Lowest monthly return for 2003
Indicative forfaiting rates
The analysis from Standard Bank London:
