From one perspective, the end of May wasn’t a bad time for M&A prospects in central and eastern Europe, despite scares of a Greek exit from the euro.
Nationalized Austrian lender Hypo Alpe hired Deutsche Bank to sell its businesses in the former Yugoslavia. In Turkey, Citi sold a 10% stake in Akbank for an expected $1.15 billion. Most encouragingly, Sberbank entered exclusive talks to buy the Turkish unit of Dexia, for $4 billion.
The problem, however, is that these deals were all of one kind – burdened western banking institutions seeking to free up capital from non-core assets. That kind of M&A is hardly very promising for the region’s longer-term prospects.
After the latest events in Greece, telecoms might join financial institutions as a relatively resilient sector for M&A bankers. But as in the banking and oil and gas sectors, strategic investors in telecoms might be rather limited to a small number of Russian state-linked buyers.
In the coming months, M&A deals even by Russian buyers will be almost impossible if they are reliant on funding from the capital markets. Emerging market equity funds suffered billions of dollars of outflows in the last weeks of May. Georgian Railways and Russian Property group O1 postponed listings in London.
Bond issuance will be less affected, but is blocked in the period of uncertainty before the next Greek election. Furthermore, sovereign issuance will be easier than corporate deals, especially high-yield, and corporate issuance will be easier than FIG.
Last month Russia’s Nomos Bank got formal approval for subordinated bonds (issued in April) to count towards its regulatory capital. Previously, much-needed sub-debt had been constrained by a rather vague ban by the Russian central bank on counting sub-debt as capital if it was issued above a prohibitively low yield.
Nomos was lucky, or wise, to issue at a time of favourable market conditions earlier this spring. But sub-debt issuance in Russia is much more difficult now, and raising equity will be harder still. That means fewer acquisitions by Russian banks, either domestically or abroad.
In fact, there is quite a lot of wishful thinking among bankers as to how much Sberbank and other Russian financial institutions might be willing or able to buy struggling banks in the region, especially in the less attractive and more needy markets where Greek banks have the biggest market shares, such as Romania.
Overall, there are far too many banks for sale in emerging Europe, particularly southeastern Europe, and not enough buyers. Russia and Russian banks have their own problems, and those problems will multiply if a Greek exit causes the oil price to collapse.
