IFR-French banks turn down dollar loans globally

Mon Oct 31, 2011 11:27am EDT

* French banks say 'no' to expensive dollar loans

* Pull-back in commodities loans, project financing

* Range of options to limit dollar borrowing

By Tessa Walsh

LONDON, Oct 31 (Reuters) - Deleveraging French banks are pushing ahead with global asset sales and are also managing capital aggressively by turning down syndicated dollar loans for corporate clients they have banked before, industry sources said on Monday.

A pull-back from unprofitable lending -- particularly expensive dollar loans due to higher bank funding costs -- is under way globally as French banks try to conserve capital in a move that could reshape project finance and commodity lending.

Europe's banks have been told to cut dividends and bonuses to help find 106 billion euros ($150 billion) to shore up their core capital by June, as they get ready to write off half their Greek government debt.

French banks are still lending selectively but have been notably absent from several high-profile loans in Europe, the Middle East and Africa (EMEA) including the $6 billion loan for commodity trader Xstrata .

A $4.7 billion loan for Qatar's Barzan project financing which is sponsored by Qatar Petroleum and Exxon Mobil also had no French lenders.

"Barzan was a profitability issue, the pricing was too low and did not meet our return requirement," a senior French banker said.

In Asia BNP Paribas pulled out of a A$2.075 billion refinancing for Australian media company Seven West after being shortlisted as one of the leads and Societe Generale declined to participate in a $15 billion, 364-day bridge loan for United Technologies Corp in the United States for the company's acquisition of Goodrich Corp

"We have to manage our balance sheet more carefully and have to be more selective. We are focusing on our core markets and clients. If there is not tangible side business and the deal is not profitable, we prefer to pass," the senior French banker added.

SHORTFALL FOUND - FOR NOW

The drop in demand for dollar assets is currently being met by domestic or regional lenders and US and Japanese banks but is worrying banks that are structuring deals for later this year or early 2012 as the trend accelerates.

"Banks structuring deals are mindful of the reduced demand for dollars - you have to factor in a big drop in appetite from the French and Germans. Filling that gap is very deal dependent - I wouldn't bet large sums of money that things always get done," a senior loan distributor said.

Loan pricing has risen in EMEA by up to 25 basis points for top companies since the summer, but with top firms borrowing at less than 100 b.p., it is still significantly lower than banks' funding costs, which can be as high as 300 b.p.

European banks are also taking steps to limit the impact of unprofitable dollar lending which include reducing the amount of dollar borrowing -- even for top blue-chip companies.

Swiss-based Adecco , the world's largest staffing company, saw its dollar borrowing restricted to $200 million of a $600 million loan. Multi-currency tranches are being created for European banks that prefer euros to dollar loans and banks are also charging a premium of 25-50 b.p. for dollar borrowing.

Companies without enough ancillary business to subsidise low loan pricing face higher loan margins and shorter loan maturities. Banque PSA has a shorter three-year tenor with two one-year extension options for example.

RUSSIA IS 'FRANCE FREE'

The impact of French banks' reduced appetite and unpredictability has been offset by strong demand for Xstrata and Barzan's loans but Russia's active loan market is the next focus for deleveraging and could be more affected.

The $6 billion loan for the mining group Xstrata had no commitments from BNP Paribas, Societe Generale, Intesa and ING which would have totalled around $700 million, bankers said.

The deal was heavily oversubscribed, however, and increased from an original amount of $5 billion as existing lenders increased their commitments and new lenders joined.

The $4.7 billion project financing for Qatar's Barzan project financing also had no French lenders in a significant about-turn for French banks which have been active lenders to the Middle Eastern loan market and Gulf project financing.

The deal, which was two times oversubscribed, revealed surprisingly high dollar liquidity among Middle Eastern banks as high net-worth individuals route savings and investments back from euro zone banks to local lenders, a third banker said.

In Russia French banks are pulling out, with the exception of a $1.5 billion loan for Norilsk Nickel . An $800 million loan for Gazprom is being arranged by SMBC, Mizuho, Bank of Tokyo-Mitsubishi UFJ and UniCredit and an upcoming loan for RUSAl is also said to have no French banks.

"Everything in Russia is France-free, other than Norilsk Nickel," the third banker said.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.