Rlpc lenders take guarded approach to ukrainian loans

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As attention shifts to Ukraine with last week's kick-off of the 2012 UEFA European Football Championship, international lenders are becoming increasingly wary to lend to borrowers in the country due to escalating political and economic instability. Intensifying speculation by top European governments over the imprisonment and treatment of former Ukrainian Prime Minister Yulia Tymoshenko, as well as concerns over the potentially destabilising impact of a parliamentary election in October, are taking centre stage for investors. Ukraine's economic growth expectations for 2012 have been downgraded, as the export-orientated economy has been heavily knocked by sliding European demand, which accounts for up to 25 percent of its exports. News last week that Ukraine had repaid half of the $2 billion loan extended by Russian lender VTB, marking the largest foreign debt payment due this year has made little impact on syndicated loans bankers, who said loan activity would remain stagnant until the political and economic hurdles - both in Ukraine and the eurozone - were resolved."There was, and is, a definite shrinking of liquidity for loans in Ukraine, as a number of banks decide not to support the borrowers anymore," one European banker said.

Stress in Ukraine's loan market has increased since the middle of last year, when many lenders were forced to pull back from what they considered non-core markets in a bid to rescue their balance sheets amid tightening liquidity. Although Ukraine's syndicated loan volume so far this year is the highest since the first half of 2008 with $475 million, bankers doubt that the annual loan volume for 2012 will match the $2.7 billion generated in 2011. There is hope for well-regarded borrowers willing to accept what lenders consider appropriate terms, with appetite also heavily dependent on "how far down the pecking order the borrower is", a second European banker said. Smaller deal sizes, shorter tenors and higher pricing are now unavoidable.

APPROVAL A group of six Russian and international lenders are seeking credit committee approval of a euro and dollar denominated loan for Ukraine's largest private power and coal producer DTEK, with terms and size expected to be dictated by the lender group.

"Anything more than $300 million is significant for Ukraine," a third European banker said. Ukrainian mining and steel group Metinvest's $325 million loan at the end of May was widely considered a success after increasing from $300 million, marking the country's largest deal this year. Yet lenders' unease with even the top Ukrainian borrowers was demonstrated by the deal's increased pricing and shorter tenor when compared with the miner's $1.2 billion loan in November. Market conditions have significantly slowed progress on Donetsksteel Iron and Steel Works' $750 million, five-year pre-export financing, for which Deutsche Bank was appointed co-ordinator in November. Meanwhile, lenders' appetite for mining group Ferrexpo, which is considering a loan, is yet to be seen, the second European banker added. Some international lenders may use the $412 million of maturing Ukrainian loans this year as an opportunity to exit, with lenders in Ukraine's more liquid neighbours Russia and Turkey stepping in to fill the gap. Russian and Turkish banks have different risk approaches and the top Russian banks, in particular, are keen to flex their lending power across the CEE with huge bilateral loans and a bigger presence on internationally syndicated deals.