A record-breaking loan for Russian oil firm Rosneft last month portends a resurgence in regional buyouts, say loans bankers involved in the deal. Prospects in the Middle East and South Africa might also be looking up.
Banks signed a second and final tranche of a $31 billion loan for Rosneft in February. The deal finances the state-owned firm’s takeover of private-sector rival TNK-BP, another Russian oil firm.
"The cost of the financing [...] is one of the lowest [in] the Russian corporate debt market," said Rosneft. This is, in addition, Russia’s largest ever financing in the loans market.
Market rumours suggest an offtake facility from commodities traders might be part of the overall acquisition financing. Rosneft will also mandate lenders in the syndicate on bonds, which must refinance up to $24 billion over the next two years.
"The success of the Rosneft loan signifies that international banks will give their support to borrowers in the region where there are strong relationship reasons to do so," says David Pepper, managing director, EMEA DCM loan origination at Bank of America Merrill Lynch, one of the arrangers. "It demonstrates what can be done."
No one expects any new deal to be quite as big as that of Rosneft, at least not in EEMEA. But bankers say there are deals in the range of up to $5 billion to $10 billion already under discussion in these regions.
One example is a potential loan of as much as $8 billion for Abu Dhabi telecoms firm Etisalat, which is among the bidders for a majority stake in Maroc Telecom, operating in Burkina Faso, Gabon, Mali and Mauritania as well as Morocco. (Qatar Telecom and KT Corp of South Korea are also bidding.)
In the Middle East, where buyout volumes started rising last year, Standard Chartered hired a new regional head of M&A last month: Tom Emmet, previously at RBS. South Africa too looks ripe for private equity deals, particularly those under $3 billion, given relatively low corporate leverage, according to research from Citi.
"Globally, M&A has been subdued over the past two to three years," says Ashu Khullar, co-head of loan structuring and syndications at Citi, which was also part of Rosneft’s syndicate. "Corporate confidence is coming back due to more positive developments in the US, and less negative news out of Europe and China. Large companies can still get financial support for acquisitions, despite the context of pressure in the bank market. The Rosneft financing proves how much this is true in emerging markets too."