Cordiant Returns Benefit as Impact of Eurozone Crisis Continues

Lending by international banks to emerging markets has continued to weaken with syndicated loans to emerging markets falling by 31%, or US $108 billion, in the last 12 months, says Cordiant, a leading emerging market private debt fund manager.

New syndicated loans* to the emerging markets have fallen to US $245.3 billion in the last year, down from $353 billion in the previous 12 months** (year end September 30).

Cordiant says that lending to emerging economies in Eastern Europe, such as Poland and Hungary, fell particularly sharply, going from $84.7 billion in 2010-11 to $53.6 billion in 2011-12, a fall of 37%. Even Asia, the area that has traditionally attracted the lion’s share of developing market bank lending, saw a 27% fall in new loans, from $155 billion to $113 billion.

David Creighton, President and CEO of Cordiant, says that the impact of the Eurozone banking crisis on trends in lending to emerging markets shows little sign of lessening. He warns that the recent increase in emerging market bond issuance will not be sufficient to compensate for the reduction in bank lending.

“Whilst the biggest emerging market corporates, like Sinopec, can increase borrowing from the bond markets, the fall in bank lending is a major issue for the thousands of mid-cap and large companies that cannot tap the capital markets and will remain reliant on lending from international banks.”

“The demand for funding continues to increase from businesses in emerging markets, but the crisis in Greece, Portugal, Italy and Spain has forced Western banks to retrench under intense pressure from politicians to increase lending in their home markets to spur their own sluggish economies. A funding gap has definitely been created in the emerging markets as a result.”

A study published by the Bank of International Settlements (December 10, 2012, The euro area crisis and cross-border bank lending to emerging markets) similarly concluded that declines in lending to emerging markets have been largely driven by the Eurozone banking crisis.

The Basel III standards, which require banks to meet much stricter capital requirements, are further exacerbating the slowdown.

Says David Creighton: “Banks have been shedding assets to meet these new requirements. Overseas lending, to emerging markets in particular, has been a major casualty.”

“From what we have seen recently, where banks are lending to the emerging markets, they appear to be leaning more towards shorter-term loans. A lot of companies are finding that what is on offer doesn’t fit their needs.”

“With the spectre of the Eurozone crisis lingering, it seems unlikely that banks will increase their emerging market lending significantly in the foreseeable future.”

The demand for financing in the emerging markets, coupled with reduced supply, mean that margins have increased and, from Cordiant’s perspective, investors are receiving better returns.

Says David Creighton: “Spreads have increased significantly; we are now lending at spreads up to 60% higher than the pre-crisis period.”


* Larger loans provided by a syndicate of banks

** Source: Bank for International Settlements


About Cordiant

Founded in 1999, Cordiant pioneered the creation of emerging market corporate loan funds that allow institutional investors to invest in partnership with International Financial Institutions. Cordiant has assets under management of US $1.1billion from some of the world’s largest institutional investors. The firm has made private investments in emerging market businesses across 30 sectors in more than 50 emerging countries around the world. Cordiant is a signatory to the UN Principles for Responsible Investment.

Press contacts

David Creighton
President and CEO
Cordiant Capital
Tel: + 1 514 286 1142

Nick Mattison or Richard Crossan
Mattison Public Relations
Tel: +44 (0) 20 7645 3636