Emerging Europe

Gazprom has reopened the Eurobond markets for Russia with a $2.25 billion issue. The 10-year deal, which features a put option after three years, is the largest ever corporate debt offering from the country (although Gazprom should be deemed a quasi-sovereign) and the first public issue since July 2008. The dollar transaction follows a SFr500 million ($429 million) private placement in early April.

A stabilized currency and higher oil prices have given a welcome fillip to the Russian capital markets. But could slumping economic growth and soaring non-performing loans undermine the recovery? Guy Norton reports from Moscow.

In the second part of Euromoney’s emerging market equity fund manager profiles, Chloe Hayward talks to seven managers and hears what history has taught them and how they plan to find their way through the minefield of commodity-linked stock markets, notably in eastern Europe.

In 2008, Russia’s property developers were hit by a brutal mix of fast-shrinking funding options and falling customer demand, sending equity valuations into a tailspin. Guy Norton reports from Moscow on the prospects for recovery.

Emerging markets hedge funds returned more than any other strategy in March, producing 4.63%, according to HFR, ending eight months of continuous losses. In 2008, average losses of emerging market hedge funds were nearly 37%, and investors withdrew $6.7 billion from them in the fourth quarter. Total hedge fund capital committed to emerging markets fell to less than $67 billion globally.

The sale of Pactual could be the first of many disposals of emerging markets assets by banks desperate to raise capital.

Richard Leighton has now assumed responsibility for fixed income Europe at Standard Chartered, as well as continuing to run FX globally. "Last year, our business in Europe grew an impressive 143%. To ensure our continued ability to build on our success and take our business to the next level, we will be strengthening our organization by aligning our structure with that in place in Americas, MENA and Africa and appointing Richard Leighton as head of trading for fixed income for Europe," says an internal memo, quashing talk that Leighton is going to retire.

It was no secret in the market that dissatisfaction at UniCredit, a conglomerate formed by the merger of about 20 different financial institutions, rose sharply after the bank told its FX staff by email that none of them would be receiving any form of bonus for their performance in 2008. This was despite the business having what insiders say was a very good year. Sources suggest that the move was one of the factors that prompted the departure of Ben Welsh from the bank in early April. Welsh was hired in September 2007 at a time when hopes were high within UniCredit that it would be able to meld together its numerous disparate parts and capitalize on what it described as its size and distribution network.

The demise of AIG has inflicted an identity crisis on the insurance industry. But insurers face exposure to distressed assets, accounting and valuation issues and a potential shortage of capital. Sounds familiar? Helen Avery reports on how insurers believe they will avoid the same fate as the banks.

A select group of emerging market equity fund managers is aiming to do something different – outperform developed markets in a prolonged global downturn. Staying clear of the crowd will be crucial to success. Chloe Hayward profiles seven leading investors and asks where they will make money in 2009.

Latvia’s Parex bank, which was rescued by the government in December after it hit liquidity problems, has agreed a loan restructuring agreement with foreign creditors. The bank is restructuring two loan facilities worth €775 million in total as part of a state-funded agreement. One loan, for €500 million, was due in June and the €275 million facility was due in February. The new terms means that the bank will stagger repayments to nearly 60 different banks over three years. The first tranche, for €232.5 million, was due last month. Parex is only paying a small restructuring fee but its benchmark borrowing costs will rise more than five times. The European Bank for Reconstruction and Development is to take a €100 million stake in Parex too.

Italy’s UniCredit made a €4 billion net profit in 2008, down 38% on the previous year but not as bad as some analysts feared. However, the bank, which is the biggest lender in central and eastern Europe, also recorded an almost 50% jump in bad debt provisions to €3.7 billion. The bank plans to sell up to €4 billion of hybrid debt to the Italian and Austrian governments, as well as private investors, to lift its core tier 1 capital ratio to 7.2% from 6.5%.

Turkey is looking to take advantage of the fact that the country’s banking sector remains relatively well capitalized to achieve its challenging overseas funding requirement in 2009. Memduh Aslan Akcay, director general at the department of the treasury in Ankara, says that this year the country is looking to raise at least $3 billion in the international bond markets. This is likely to be the highest total required by any sovereign in the emerging Europe region. In 2008, Turkey had an indicated overseas funding target of $5.5 billion but the market turmoil caused by the fallout from the global credit crunch and associated economic slowdown meant that it was only able to raise $4 billion. So far this year the sovereign has raised $1 billion through a dollar Eurobond and the US currency along with euro will probably account for the bulk of this year’s issuance. "The US dollar and the euro were the main funding currencies so far and will remain as the core markets for us in the future," says Akcay. "On the other hand, we are ready to tap new currencies if and when we believe the conditions are appropriate for a transaction."

Last month executives of the world’s largest banks, alarmed at collapsing share prices, told everyone what a profitable start to 2009 they had enjoyed. By the end of the month, shares were rallying. Let’s hope that actual first-quarter 2009 earnings announcements don’t pour cold water on their hopes. Peter Lee reports.

Germany’s commitment to the EU project will guarantee bailouts for weaker eurozone members. But it’s a different story for hard-pressed central and eastern European states and their banks.

The marketing campaign for the first-ever initial public offering from Armenia has been launched despite the fact that the country recently had to abandon attempts to support its currency, the dram, which depreciated by 25% in March.