The Russian stock market suffered its biggest decline in at least a decade Wednesday, and trading on the MICEX and RTS was suspended. These developments, along with the Lehman Brothers collapse and the Georgian conflict, have rocked already negative sentiment in the Russian loan market.
"I'm petrified. We're forced to lend into a market where very little domestic lending is done and international lenders are the lenders of last resort. Russian companies are funded by international lenders, which have no excess liquidity to offer," a head of loan syndications said.
Banks are hoarding capital after Lehman's collapse to fund further possible write-downs, and the ranks of potential lenders are thinning rapidly because of enforced banking consolidation.
Earlier this week, Merrill Lynch was sold to Bank of America, and on Wednesday a source said HBOS was in advanced merger talks with Lloyds TSB.
The deteriorating situation in the international financial sector could derail plans by Russian companies to borrow and threaten the syndication and sell down of loans that are already in the market, senior bankers said.
"The brakes have been put on any new funding," an emerging markets loan specialist said.
Deals that were expected to be agreed on between now and the end of the year are most vulnerable, which include large loans for VimpelCom, LUKoil, titanium producer VSMPO-Avisma and Vneshekonombank.
Syndication of LUKoil's loan, scheduled to launch this week, has been delayed, although talks are continuing, sources said. Discussions between VimpelCom and the eight banks arranging the company's planned $1 billion loan are also expected to be extended.
Bankers say less-advanced negotiations are being put off until next year.
The financial crisis also affects $6.2 billion of loans that are currently in the market for Severstal and Novolipetsk Steel, Sberbank and fertilizer manufacturer Eurochem.
Any disruption to the loan market could have a serious effect on Russia's financial and corporate sector. The loan market has been the country's sole source of funds in 2008, while the bond market has remained closed for most of the year.
International lenders are pulling capital back to service key relationship clients, potentially creating a shortfall for Russian borrowers.
Only major banks with a strong presence in Russia are expected to continue to do business before the end of the year, and only deals with minimal syndication risk -- club-style deals -- will be considered.
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