Trade Finance Syndications

Our expertise

Powering your ambition

14th April 2009

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Disclaimer

This presentation has been prepared by Standard Chartered Bank (“SCB”) for restricted distribution. Neither SCB nor the distributors nor any of its affiliates and/or their directors, officers, employees shall in any way be responsible or liable for any losses or damages whatsoever which any person may suffer or incur as a result of acting or otherwise relying upon anything stated or inferred in or omitted from this presentation.

This presentation is for information purposes only and is based on information available to the public from sources that SCB believes to be reliable, but no representation is made that it is accurate or complete, and no information herein should be relied upon as such. Opinions and projections found in this presentation reflect our opinion as of the presentation date and are subject to change without notice. This presentation is neither intended nor should be considered as an offer or solicitation, or as the basis for any contract, for purchase of any security, loan or other financial instrument.

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Syndications

Life is not the same anymore: Banks in trouble Capital is scarce Basel II is limiting scope of operations Return on Assets and Return on Equity are at the forefront of the lending decision Volumes are down Pricing is up

Options are limited: Leverage & Mezzanine are dead Hedge Fund involvement in the market is waning Underwriting capacity is scarce due to decrease in retail investors / risk appetite & capital US/Europe seeing maximum tenor decreasing to 1-2 years. Non-Performing Icelandic / Russian / Eastern European assets eating up excessive amounts

of capital due to Basel II requirements

Yet deals are still being done…

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Banks in Trouble

Lehman Brothers = Gone

ABN AMRO = RBS / Fortis / Santander

RBS / Fortis / Lloyds / Citi = Part Nationalised

Merrill Lynch = Bank of America

Bear Stearns = JP Morgan

Subprime / CDOs / RMBS / CMBS have destroyed balance sheets

Writedowns have lead to massive losses eroding years of retained earnings and resulting in expensive bailouts

The future is uncertain!

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Capital is Scarce

New World: Liquidity is tight

Writedowns eat away at capital lowering lending capabilities

Balance Sheets are weighed down by past lending

Reversion to home markets

Upward re-pricing of risk due on the grounds of credit and liquidity

Rights-Issues – Done with varying degrees of success

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Basel II

BASEL II CAPITAL ACCORD

1. MINIMUM CAPITAL

• Sets minimum acceptable capital

• Credit risk tied to ratings

– Public ratings

– Internal ratings

• Explicit treatment of Operational Risk

1. MINIMUM CAPITAL

• Sets minimum acceptable capital

• Credit risk tied to ratings

– Public ratings

– Internal ratings

• Explicit treatment of Operational Risk

2. SUPERVISORY REVIEW

• Sets out rules and powers for regulators to police the complex framework

• Regulators have flexibility to set higher capital requirements, if necessary

2. SUPERVISORY REVIEW

• Sets out rules and powers for regulators to police the complex framework

• Regulators have flexibility to set higher capital requirements, if necessary

3. MARKET DISCIPLINE

• Enhanced Market Discipline

• Greater and Improved disclosure of Risk Management Metrics

3. MARKET DISCIPLINE

• Enhanced Market Discipline

• Greater and Improved disclosure of Risk Management Metrics

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Volumes are Down:

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Pricing is Up:

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Leverage is Dead

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Loan Syndication

Yet deals are still being done…

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Success in Europe

Trafigura: $520m, 27th March 09, 1 year RCF, 250bp (All-in) – Up from 80bp in 2008

ED&F Man: $1,251m, 17th Feb 09, 1&2 year RCF, 350/412.5bp (All-in) – Up from 85/105bp in

2008 Stemcor:

- $400m, 31st March 09, 364-Day, L+350bp (All-in) – Up from 155bp in 2008

WHY?– These transactions are trade or commodity related– Short tenor– Well priced (approx 3x previous years all-in pricing)– Have strong relationships with banking group– Are self-liquidating

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Failure in Europe: Lending alone is not attractive anymore

Central & Eastern Europe: Only 1 successful syndication in H2 2008

– Out of 31 Financial Institutions

Why?– Lack of relationships & ancillary business– Deterioration of credit (Sovereign / Corporate & FI)– Went to the market for USD when Costs of Funds where very high– Yield driven participation played a large part in previous financing

Result:– Eurozone Banks have over $1.5 trillion of exposure to Central and

Eastern Europe.– Erste, RZB, Soc Gen, UniCredit & KBC who were all active players in the

loan market, have the most substantial known exposures. National Focus:

Banks are pulling back within their borders and focussing on core corporate client e.g.. RBS, Commerzbank

Iceland: The collapse of Landsbanki & Kaupthing lead to the country defaulting

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Failure in Europe: Name alone does not sell anymore

Porsche - €10bn, 24th March 09, 1 year RCF, L+575bp All-in (Implied Rating BBB):

Drew down RCF in 2008 priced at L+45bp (All-in) when Lenders’ Cost of Funds where greater than L+100bp, which angered Lenders.

Went to the market in Feb 2009 to raise €12.5bn, €10bn to refinance and an additional €2.5bn for General Corporate Purposes (GCP).

Initially offered L+475bp and was shortly afterwards forced to increase fees by 50bp to attract Lenders.

Only managed to raise €8.55bn as of the day before repayment date. Increased margin by a further 50bp and managed to secure €10bn for the

refinance but not additional €2.5bn for GCP. Had to secure the facility with shares in Volkswagen (2008 RCF was unsecured). Technically Defaulted as repayment of Existing Facility was a day late.

As a result, Porsche paid 10x the price of their previous transaction & had to provide security as they misjudged the market!

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Bonds – Prices and Dangers

Borrowers are being forced into Bond Market due to lack of medium term liquidity in the Loan Market.

High priced bonds lock-in high financing costs without prepayment flexibility of loans.

Recent Issuances: Volvo (A-) 5 year EUR 700m – 987.5bp (2007 10yr EUR 1,000m – 500bp) BMW (A) 4 year EUR 100m – 800bp (2005 4yr EUR 400m – 300bp) BMW (A) 3 year EUR 1,250m – m/s+387.5bp (2007 3yr EUR 100m – m/s+5bp) Metro (BBB+) 6 year EUR 1,000m – 762.5bp (2004 5yr EUR 750m – m/s+40bp) Daimler (A-) 3 ½ year EUR 1,000m – 687.5bp (2007 3yr EUR 2,000m – 437.5bp) EDF (AA-) 10 year EUR 2,000m – 650bp (2006 10yr EUR 1,000m – 412.5bp)

Bad market conditions + increased borrowing costs = increased price =

Decreased Demand

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LIBOR / Cost of Funds / Liquidity Premium

While 3mth USD & EUR LIBOR are at near record lows 1.16% (USD) / 1.47% (EUR), this doesn’t reflect the full story.

By virtue of the LIBOR fixing mechanism at least 4 of the 16 banks on the USD panel should be willing to lend at below the published rate and 4 at the rate.

However Cost of Funds are greater than LIBOR.

The difference is the liquidity premium banks need to pay to published LIBOR Rates. No Lender will tell a Borrower their Cost of Funds out of fear of the associated stigma of being considered a “weaker credit”.

As long as Cost of Funds > LIBOR, Margins will need to be higher to compensate for the liquidity premium.

Cost of Funds premium is less of an issue in Euro and GBP transactions.

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The Credit Decision

The decision historically relied on just 3 questions: Can we lend to this Borrower? How much can we lend to this Borrower? How long can we lend to this Borrower for?

Now these 3 questions have been joined by: How is this deal priced in comparison with similar deals? How does it look under Basel II? What’s the Return on Assets? What's the Return on Equity?

Result:

Increased Pricing / Lower Tenor / Tighter Covenants

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Risk Weighted Asset (RWA)

Under the Basel II Advanced IRB method, an International Bank’s participation will be partially dependant on return on RWA.

A $100m fully-drawn loan with no collateral for a company with an ‘internal’ rating equivalent to B+ would have a RWA of $160-190m for 1 year

A $100m undrawn Revolving Credit Facility under the same conditions would maintain the same RWA%, however this is only applied to 10% of the committed limit i.e. $16-19m for 1 year.

A $100m fully-drawn loan with $100m of hedged Crude Oil as collateral with the same ‘internal’ B+ rating would have a RWA of $30-40m for 1 year

Result: The higher the RWA, the higher the pricing to meet internal return constraints

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Ancillary Business

Ancillary Business has (for a long time) been a reason for participating in underpriced syndicated loans.

Losses from Secondary sell-down could be offset against revenues generated from other aspects of the relationship.

This has led to Financial Institutions / Corporates in certain markets being able to borrow at unrealistic prices.

While these relationships are still highly valued, facilities now need to make sense on a standalone basis:

Price, Tenor, Return on Assets, Return on Capital, Cost of Funds etc.

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Covenants

Covenant-light started appearing in corporate syndications in 2006, partly due to the strength of private equity firms and partly due to almost unending liquidity. Covenant-light loans relaxed the protection and corresponding reporting of key ratios (Gearing, EBITDA, MAC etc).

However covenants remained tight in Africa – not to the detriment but the benefit of the overall market.

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Africa – why is it different?

2008 was a record year for Africa

Real Deals – sensible deals with substance: Telecoms, Energy, Mining etc

– Sonangol ( Receivables backed) USD 2,500m

– Ghana Cocoa Board( Receivables backed) USD 1,000m

– AngloGold (Commodity Corporate) USD 1,000m

– Lonmin (Commodity Corporate) USD 400m

Maturities – Africa is the only place where 3-5 years is still marketable for Corporates. For FIs while commercial lenders may only offer 1 year, DFIs

are willing to do up to 5 years.

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Advantages of Local Currency Facilities

Local currency markets have the depth to accommodate larger facilities.

Utilise the greater liquidity in local currency markets.

With high EUR & USD loan pricing, local currency could be the cheaper option.

SCB is present in Africa and can assist you with this.A few examples from 2008:

Syndicated Loans: Celtel Tanzania, Kenyan Power & Lighting Corporation, Telkom Kenya Debt Securities: Union Bank of Nigeria, Blue Financial Services Botswana, African

Development Bank (UGX Note)

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Africa - The Knock on Effect :No one is an island

Decrease in Non-African Banks participating in African Facilities due to focus on core corporate clients.

In 2006-Q108, 164 Non-African FIs participated in US$/EUR African Deals. In the last 12 months….only 47!

Decrease in players partially due to mergers and nationalisation

KBC / HSH / ING & Landesbanks in Germany are out of the international market

A number of International Banks are moving away from FIs

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Africa is still open for business

SCB is still with you, as are certain other banks

Development Finance Institutions:, African Development Bank, African Export Import Bank, FMO, DEG, KfW, Proparco and of course IFC.

Opportunities in Energy, Mining, Commodities & Financial Institutions

The Global Market is tough, but Africa can emerge

stronger than ever.