1. Finance options for commodity producers
Access to capital and loan markets
Kris Van Broekhoven
Corporate Financing in Russia & CIS, London 24 November 2011

2. Content Background – one crisis after another EU Summit
Capital Markets
Loan Markets
Concluding remarks

3. Content Background – One crisis after another EU Summit
Capital Markets
Loan Markets
Concluding remarks

4. Background – One crisis after another
August 2007: Financial Crisis, sub-prime crisis
Credit crunch, funding costs, banks deleveraging, bank bailouts
August 2008: Global Economic Crisis
Fall in consumption, commodity prices nosedive, corporate losses, corporates deleveraging, repricing of risk
Late : European Sovereign Debt Crisis
Sovereign bailouts, EU Summit
Next? renewed fears of stalling growth in US and EU

5. Content Background – One crisis after another EU Summit
Capital Markets
Loan Markets
Concluding remarks

6. EU Summit Leaders offer more clarity on 3 problems faced by the EU
Bank capitalisation: Tier 1 capital ratio of 9% by July 2012
Voluntary 50% haircut on Greek bonds
EFSF expansion, increasing fire power to EUR 1 trillion

7. Content Background – One crisis after another EU Summit
Capital Markets
Loan Markets
Concluding remarks

8. Capital Markets
Significant dislocations in credit markets seen since 2007
Benchmark interest rates in US and Europe at historic lows
High levels of liquidity seen for EM bonds given recognition of superior growth potential in EM
Despite periodic outflows of capital during times of heightened volatility
Recent spike in volatility triggered by renewed fears of stalling growth in US and European markets, also uncertainty re China

9. Content Background – One crisis after another EU Summit
Capital Markets
Loan Markets
Concluding remarks

10. Loan Markets
Commodity finance loans (pre-export finance, PXF) generally performed well during economic crisis despite shock to the system
PXF generally stable source of financing
Oil & Gas: ready alternative to absent capital markets (e.g. 2009: TNK-BP, Lukoil)
Metals & Mining: technical waivers in response to financial covenant breaches (2009) followed by new PXF loans in (e.g. Ferrexpo, Evraz, Mechel, Metalloinvest, Rusal, SUEK, Metinvest)
1H11 saw improved liquidity and more competitive terms (tenor, pricing)

11. Syndicated loans to CIS Corporates
(USD billions)
structured = PXF
Source: Deal Logic

12. BPS Time lag is 115 days between CDS & PXF execution
Source: Deallogic & DB
Time lag is 115 days between CDS & PXF execution

13. European Funding Costs
BPS
Source: DB

14. Divergence in bank funding costs increases
CDS rates of 5 large PXF banks over past 6 months
Source: DB

15. Loan Markets (continued)
EU sovereign debt crisis directly affecting PXF loan market since August 2011
PXF loan market in Russia/CIS is historically dominated by European banks
liquidity impacted by banks shrinking balance sheet (linked to need for recapitalisation) and
increased cost of funding and focus on RoRWA translating in higher margins
Commodity producers better prepared than in 2008 (leverage ratio’s, cost of production, sources of financing, flexibility)

16. Content Background – One crisis after another EU Summit
Capital Markets
Loan Markets
Concluding remarks

17. Concluding remarks
Commodity producers generally better prepared than in 2008
Both capital and loan markets would benefit from clarity and decisive action from political and economic leaders to reduce uncertainty and volatility
Liquidity in capital markets boosted by EM growth prospects but markets inherently prone to (over)reacting to events
PXF loan market is used to cyclicality but continued liquidity and terms will depend on how banks digest new regulatory environment
Capital and loan markets likely to continue to complement each other when financing Russian and CIS producers. Borrowers to take advantage of windows of opportunity and react quickly.

18. Thank you