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CLACE Conference - May 2010 The world of Loans and Structured Trade Finance…

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Presentation on theme: "CLACE Conference - May 2010 The world of Loans and Structured Trade Finance…"— Presentation transcript:

1 CLACE Conference - May 2010 The world of Loans and Structured Trade Finance…

2 Structured Trade Finance CLACE Conference - May 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

3 CLACE Conference - May 2010 What are these ‘worlds’ and how do they differ…?? Trade FinanceLoans Handled 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 BanksTerm loans almost always funded; Revolving Credit Facilities seldom fully utilized

4 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!!!

5 CLACE Conference - May 2010 How big are these worlds…??

6 CLACE Conference - May 2010

7 More specifically… Volume of World Merchandise Trade: 2006US$ 11.8 trillion 2007US$ 13.6 trillion 2008US$ 15.7 trillion Global Loan Issuance: 2005US$ 3 trillion 2006US$ 3.5 trillion 2007US$ 4 trillion 2008US$ 2.25 trillion

8 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!!

9 CLACE Conference - May 2010 Which felt like this for some…

10 CLACE Conference - May 2010 What of Smooth sailing or stormy waters ??

11 CLACE Conference - May 2010 Well, it’s complicated…

12 CLACE Conference - May 2010 …and tricky

13 CLACE Conference - May 2010 …and volatile!!!

14 CLACE Conference - May 2010 But there’s hope, I think… Q loan issuance up handsomely year-on-year; WTO economists forecast global trade to rise 9.5% in 2010 – March Secondary market activity bubbling Investors hungry for assets Margins and yields falling Tenors lengthening

15 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…

16 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!!

17 CLACE Conference - May 2010

18 And suddenly things change again… Market sentiment becomes uneasy Increase in ‘cost of funding’ (liquidity) 3mth Libor doubled in 2 months!! Diminishing confidence all round Higher yields demanded by lenders/investors Opportunistic bidding/buying in secondary market

19 CLACE Conference - May 2010 Regional Overview - Asia High levels of local currency who have strong appetite to lend to familiar names Chinese banks lent aggressively in (especially in the property sector) - eg, over US$1trn in Jan ’10!! - but this momentum has slowed following recent govt restrictions Elsewhere, steady flow of deals from Australia, Indonesia, Philippines, Singapore and Vietnam; Tenors being pushed …as far as 7yrs Notable 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

20 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

21 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…

22 CLACE Conference - May 2010

23 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… ‘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 appetite Liquidity has become prominent issue again – forced banks to withdraw from primary loans Secondary market activity ‘spotty’

24 CLACE Conference - May 2010 The market has slowed down…

25 CLACE Conference - May 2010 …‘pipeline’ not too promising

26 CLACE Conference - May 2010 Regional Overview – Latin America A relative paradise to the weary!!…

27 CLACE Conference - May 2010

28 Regional Overview – Latin America A relative paradise to the weary!!… Enjoyed fabulous commodities boom; Brazil enjoying a bonanza… …aided by a prudent central bank Chile rocked by earthquake but has funds to rebuild Mexico 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 2009/10 Borrowing costs tumbled over last 18mths Tenors being pushed to 3yrs and beyond…

29 CLACE Conference - May 2010 And what of Pricing …??

30 CLACE Conference - May 2010 And what of Pricing …?? “PLEASE CALL THE DESK…”

31 CLACE Conference - May 2010 Thank you for your patience… Brendan Herley ‘ Distributor of Loans !’


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