Transition to prosperity
country pro file
In a country that has faced so many obstades in the last decade, our team in
Moscow has had its share of hard work. While there's still a lot to do, they are
walking a new path - one of great potential and optimism.
Cutting costs
Recovery plans
Minimizing risks
Market maximization
- International appeal
Complex situation
What's NewS Issue 3 April/May 2000 "J
Although the crisis in Russia created
substantial losses for most banks, by
and large, Rabobank International was
left untouched. RI's country manager for
Russia, Maarten Pronk, explains how that
is possible despite the fact that we had a
large Russian country limit available at
the time. 'A combination of factors can be
mentioned, the most important of which
are the caution we used in participating in
syndicated transactions, our quick access
to locally available information and the
concentration on the F&A sector,' he says.
No stranger to economie turmoil, Pronk
had already experienced new currencies
and external debt crises while working in
South America in the mid-1980s.
In the wake of the crisis, careful evalua-
tion of our necessary infrastructure in
Russia played a role in reducing costs.
The knowledge that violent changes in di-
rection are not uncommon in emerging
markets, combined with a number of un-
favourable trends in the domestic Russian
economy, had already alerted the manage
ment of Moscow office. Infrastructure
was built up in such a manner which
would enable the office to reduce expenses
rapidly when needed. With the obvious
need to 'scale back' to the
then available market op-
portunities and RI's risk
appetite, a total cost re-
duction of 42% was ob-
tained in a process which
included closing some de-
partments and reducing
others.
After receiving the responsibility for debt
recovery of the Russian portfolio, the
Moscow office managed to structure some
remarkable recoveries. The most notice-
able was that a local bank in Moscow
with a negative equity of over USD 300
million could be persuaded to repay the
uncovered portion of an ECA insured
deal, while that same bank was also in-
strumental in structuring a debt for assets
swap in order for it to be liberated front a
guarantee issued previously in a forfait
transaction. At present, the operational
arm of RI in Russia, Raboinvest, has man
aged to create its own niche by offering a
sophisticated version of the soft commod-
ity repo in which a western trader backs
up the repurchase obligation of our local
counterparty. The first transaction was
hooked recently. This structured trade fi-
nance approach ntitigates credit risks sub-
stantially and is especially suitable for ap-
plication in the more complicated
emerging markets. Before the end of the
year, a total of more than USD 50 million
is expected to be in the books.
'Our focus F&A customers are
clearly quite interested in this
product which expands their
choice of financing alternatives,'
says Pronk.
Additionally, the Moscow office
has become quite active in solicit-
ing business front financial coun-
terparties, which involve no, or an ab
solute minimum of risk. Just to give an
example, a mid-10 digit USD volume is
expected for cash covered L/C transac
tions only. This is just one of the ways in
which, through the proper use of risk ntit-
igants, and an intensive sales effort, rea-
sonable results can be obtained despite the
general perception of operating in a haz-
ardous environment.
ing is structural rather than an incident.
It's still too early to say, but the signs look
good. In general, we're maintaining our
optiniistic, yet cautioned, outlook for the
future of the market.'
While the market signals remain encour-
aging, the Sao Paulo team is making sure
they optimize the opportunity. 'We're go-
ing to pool our resources as much as pos
sible,' Van Schelven says. 'This means
we'11 keep doing credit, but we're also do-
ing other things. Our clients are express-
ing a lot more interest in M&A, and we'11
encourage these discussions. In terms of
long-term financing, our credit depart-
ment is preparing to meet our customers'
needs for these services. We'11 meet any
challenge we have to - the opportunities
are all rhere.'
José-Roberto Machado
The devaluation and im-
proved market conditions
have also brought in a mas-
sive inflow of foreign direct
investment. In 1999, for
eign investors pumped USD
29 billion into the market,
covering the need in bal-
ance of payments and even
generating a surplus. And
this year, the projection is USD 23 billion
- an amount that already covers Brazil's
account deficit. 'After the devaluation, in-
dustrial companies became cheaper in dol
lar terms,' explains Machado. 'Consumers
are returning to the market - with a popu-
lation of 160 million, this translates into
an immense potential in growth. The need
for intproving services like water and Utili
ties presents investors with great opportu
nities.' And, with the largest privatization
program in the world, a process
which stalled in 1999 but is now
back on track, investment oppor
tunities are even more inviting.
'Demand for long-term financing
is on the rise,' says Van Schelven.
'While this is encouraging, it's
also complicated.' This is where
the country limit committee comes in,
who sets the limits for emerging markets
each year (see sidebar). While it was clear
the situation in Brazil was intproving, fun
damentais such as the debt position re
main the same. The one-year limit set in
1999 was not changed in this year's report
released by the committee in February.
'We've seen years which began positively,
but then the crisis returned. We have to be
careful before we conclude that we're see-
Maarten Pronk