Consumer finances

Adcb to buy $1225 mln sme loan portfolio from mubadala ge


DUBAI, April 20 Abu Dhabi Commercial Bank has agreed to buy a portfolio of asset financing loans worth 450 million dirhams ($122.5 million) from Mubadala GE Capital, it said in a bourse statement on Sunday. The portfolio, which comprises loans to small and medium-sized enterprises (SMEs) in the United Arab Emirates, will strengthen the bank's position in a sector described by ADCB's chief executive Alaa Eraiqat as "a critical component of the UAE economy".

Minister of Economy Sultan bin Saeed al-Mansouri said this month that he expected the contribution of SMEs to the UAE's gross domestic product to rise to 70 percent by 2020 from 60 percent in 2011, helped by a new law designed to foster their development.

Mubadala GE Capital, established in 2010 to provide structured financing to businesses, is a joint venture between Abu Dhabi state investment firm Mubadala and General Electric.

Africa money in goma, adversity brings opportunity, no prosperity


Dec 4 A decade after this Congolese border city was covered by lava spewed from the nearby Mount Nyiragongo volcano, Goma resident Barwani Bwashi has found use for the dark debris."It's very useful," he said as he pointed to a makeshift metre-high wall built from the volcanic rubble that marks off the small yard in front of his modest, one-window house. Bwashi, who works in a local cigarette factory, said he and his family had broken up the hardened lava with hammers. Elsewhere in his neighborhood, far bigger walls built from the lava surround compounds. In one yard, a foundation for a house has been constructed from it while outside toilets are also perched on top of the lava rock. It is a defining feature of Goma architecture. Leave it to Goma's long-suffering but resourceful residents to find opportunity in adversity. After the volcano blew up in January 2002, much of the city was brought to a standstill as the red-hot molten lava coursed through its streets and spilled into homes and businesses. The city was on edge again in November after it was captured by rebels from a group called M23 who took up arms eight months ago against the government of President Joseph Kabila. The rebels quit Goma on Saturday under a deal brokered by regional powers but not before they had seized their own opportunities. Reuters reporters observed them helping themselves to munitions and weapons in Goma's port on the north shore of Lake Kivu that were left behind by the Congolese army. Police and residents also say they looted some shops. Goma, which lies on Congo's eastern border with Rwanda, has long been a focal point of conflict and crisis.

It has been occupied by rebels before and Rwanda has twice invaded the region to pursue Hutu rebels who fled after carrying out the 1994 genocide that killed 800,000 Tutsis and moderate Hutus. The region has also been plagued by conflict because of its mineral wealth, including gold, tin and coltan. The latter is crucial to the construction of mobile phones. SURVIVING NOT THRIVING In what can only be described as a hot-spot economy, the city's hotels have done a roaring trade as journalists, aid agencies and military observers descended on the city, as they have done periodically in the past.

Others also profit behind the smokescreen of conflict. According to the United Nations, corruption in the army includes Congolese troops running illicit mining operations in the country's east. Few locals see any benefit. It all highlights the precarious nature of an economy where opportunity often seems to arise from the ashes of adversity, be it a volcanic eruption or rebel occupation. Unlike the lava underpinning Goma's new houses, it is hardly a solid foundation for development or economic growth or the orderly accumulation of wealth and capital. A functioning state would surely help. But there is little evidence of that on Goma's mostly dusty and unpaved roads that are scarred with bone-jarring pot holes. Open sewers emitting a foul stench are strewn with garbage and infested with flies.

Many of the locals are stuck in a cycle of subsistence and survival, using anything that comes to hand. Volcanic rock is useful precisely because it is free in a place where few people have a lot of money to spend, let alone save or invest it. In Goma's colourful street-side markets, rural women hawk their meagre wares, mostly smoked fish and produce they have grown themselves, or items such as sandals. On Monday several who spoke to Reuters said they were glad the brief rebel occupation was over but the disruption meant few people had money to buy their goods, not least because the banks remained shut."It's a problem because people have no money," said one middle-aged woman who gave her name as Francoise as she tried to sell sandals and flip-flops. Other women sat stoically in front of their produce. One was selling locusts - a local delicacy - gathered in the countryside, while others offered a few onions or tomatoes. Their life is clearly one of raw subsistence but the volcano that dominates Goma's skyline has also provided them with the means to at least get by. Volcanic ash has, over the centuries, enriched the soil with a fertility that can be seen in the riot of lush vegetation that cloaks the region's rugged hills in stunning shades of green. If you have a garden plot here, almost anything will grow. This enables people to survive. But with conflict never ending and the prospect of Nyiragongo erupting again, few can thrive.

Aluminium market creaks under weight of financing deals


* Not enough liquidity for amount of metal in financing deals* Aluminium open interest dwindles from 2011 peak* "Squeezes" likely to be a feature of the marketBy Susan Thomas and Josephine MasonLONDON/NEW YORK, Feb 21 The $80 billion aluminium market is starting to crack under the weight of finance deals that have locked up millions of tonnes of the metal as collateral in warehouses. For years, financial institutions have been buying physical aluminium and simultaneously selling futures. Stock financing is particularly attractive for banks and other such institutions, which have access to cheap funding to pay for the inventory. The strategy relies on the futures market remaining in a "contango" structure, where the price of a futures contract tends to decline as it approaches the delivery date. The aluminium market, which was in contango for most of last year, whipped into the opposite structure, called backwardation, in December, when spot prices were at a $44 a tonne premium to prices in three months' time CMAL0-3. And backwardations are cropping up at regular intervals along the aluminium forward curve this year. This would normally mean market tightness and consumers scrambling for metal. But not in this case, analysts and traders say."These kinks in the curve are not fundamentally justified," Barclays analyst Nicholas Snowdon said. There is currently a glut of aluminium. Instead the tightening in spreads is reflecting a lack of urgency in hedging by consumers along the curve for 2013, which means forward selling pressure from inventory financiers and producers that has not been offset by buying, Snowdon said.

There are backwardations along the forward curve in June-July, September-October and December 2013-January 2014. Most stock financing deals are executed for a few months at a time and must be periodically rolled forward. The financier must buy back its short position ahead of maturity and then sell futures contracts for a date further ahead. The need to buy back short futures positions as part of the roll leaves the financier vulnerable to a squeeze.

"If there's a lot of demand for metal for financing, there's got to be someone on the other side of the deal. Traditionally there had been a lot of money coming in from long-only indices, and I'm not sure that is still the case," Citi analyst David Wilson said."It does suggest that there is no longer enough liquidity for the amount of metal in financing. This is the bigger issue."In a typical stock financing deal, the financial institution counts on being able to buy back the short futures position for less than it originally sold the position for, making a profit. In the event that the market moves into backwardation, and the futures position costs more to buy back than it was sold for, and the financial institution may have to deliver the physical warehouse metal against its short position. Any geniune tightness in aluminium supplies would be likely to appear as a backwardation near the front end of the curve and that is not the case this year.

"We're forecasting a big surplus this year. Moreover, if there was tightness it would come out in front-end time spreads," Snowdon said. "This is more a reflection of the transactional imbalance caused by people undertaking inventory financing and in turn participants pre-positioning for those financing deals being ultimately rolled forward."In other words, traders say, it has become easy to squeeze the aluminium market, but it's not a typical squeeze."June-July has tightened up since January because that's where people are pushing these forward hedges to," said a London-based metal trader."You need discrete lenders of June-July and they don't exist any more. All it takes is someone to borrow 1,000 lots and suddenly the market gets tight and the market squeezes itself because there's a lack of liquidity."A big hedge fund has been mentioned by several metals traders as being behind a squeeze in June-July, but many said the identity of the protagonist is not relevant."The name is not important. What's important is the fact that the aluminium market has become easy to squeeze," said a London-based aluminium trader. Whoever it was, they did not need to take a sizeable position to prompt the backwardation, the traders said."It seemed to develop a life of its own because panic sets in between those having to roll financing deals, CTAs

Bank of cyprus mulling loan book swap with greek bank


ATHENS Aug 20 Bank of Cyprus is looking into swapping part of its loan book with a Greek bank operating in the Mediterranean island as part of moves to strengthen its capital base, it said in a stock exchange filing on Monday. Cypriot banks operating in Greece have been battered by the country's debt crisis and deep recession which have caused losses in the sovereign debt restructuring and a rise in non-performing loans and as a result Cyprus sought emergency financial aid from its EU partners on June 25. The Bank of Cyprus filing came in response to a newspaper report that it is in talks with Greek lender Alpha Bank on swapping part of its loan book with Alpha's loans in Cyprus.

"In the context of planning to strengthen its capital position and shield its balance sheet, the bank is looking into a number of options. One such option is exchanging ... assets and liabilities with one of the Greek banks active in Cyprus," the Bank of Cyprus said in the filing."At this stage there is nothing specific to announce," it said, without naming any Greek bank.

Alpha Bank, which declined to comment, is one of Greece's three largest lenders which have offered to buy Credit Agricole's struggling Greek unit Emporiki Bank, put up for sale by the French lender to limit its exposure to Greece.

The report by daily newspaper Kathimerini said Alpha Bank's impaired loans in Cyprus were smaller than the Bank of Cyprus's non-performing credit in Greece and that the difference would be made up in some form including shares. Greece's economy is expected to stay in recession for a fifth straight year in 2012, with gross domestic product seen contracting by more than 7 percent.

Cairn plants flag but loan supply will stall market


* Sourcing assets will be biggest challenge* European market cannot grow without primary lev-loans* Rally in liabilities makes arbitrage work againBy Owen SandersonLONDON, Feb 15 (IFR) - Cairn Capital is about to win the race to become the first manager to sell a European arbitrage CLO since the onset of the financial crisis, but a true recovery in the market is being blocked by a lack of loan supply. Without new loans to buy, CLO managers hoping to bring new deals - or to stay invested with their outstanding deals at decent spreads - will have to hunt around in the secondary market to get hold of small size in a dwindling, ever-more-concentrated pool of European leveraged loans. In the last 12 months, appetite for European CLO liabilities has grown, and spreads have raced tighter still in the first six weeks of 2013."All the big arranging banks could sell a full CLO capital structure tomorrow," said a European CLO market veteran. "We'll see more deals this year purely on that basis, but it will be held back by [lack of] loan supply."A UK-based CLO manager said that liquidity in the European loan market was a huge challenge for CLO arrangers."In the US, you can go out to the market for USD500m of leveraged loans. You can buy them in a day, more or less at the offer price. In Europe, the same thing would take six weeks at least."HOW CAIRN WILL DO IT

Cairn's EUR300.5m deal Cairn CLO III can be seen as a bet on the recovery of the primary market - the new deal will only be 50% ramped at close - giving Cairn six months to invest the rest of the money, during which time it will be receiving "negative carry" - paying more to borrow the money than it receives from holding the assets. Exposures already in the pool are also said to be short-dated, meaning Cairn will not only have to find another EUR150m of loans, but also maintain asset coverage as existing loans roll off. One market participant reported that a hung warehouse, possibly from a previously aborted Cairn deal, may have provided some of the underlying assets, though two sources said at least 40% of underlying came via sole arranger Credit Suisse's secondary loan trading desk. A recovery in the loan market will allow Cairn to get more spread in the deal because it will ease the supply-demand imbalance in loans and give Cairn a greater variety of assets to purchase. This should give a better return to the equity holder, which is a US pension fund with more than USD6bn of assets under management. Cairn receives a 10% performance fee for any equity IRR above 12%, suggesting this is its minimum case for equity returns. Cairn takes a 50bp management fee regardless, 15bp at a senior level and 35bp subordinated. In its last pre-crisis deal, Cairn received a variable fee from 50bp to 65bp, and 20% of performance over 12%.

Cairn's structure incorporates innovations from the revival of the US market. The equity gets coupon reset language, allowing a majority of equity holders to refinance the liabilities at tighter spreads without collapsing the structure. This limits the upside for the debt - but makes for a stronger structure. For their part, debt investors get better security, with drastically lower leverage than with pre-crisis deals, and a cleaner collateral pool. Instead of the 10 times leverage usual in the pre-crisis market, Cairn CLO III is five times leveraged, with no Double B debt tranche. It also specifies 90% senior secured loans - limiting possible exposure to second lien loans, bonds, or other collateral. This was included in Cairn II, but was not standard across European CLOs before the crisis. Structured finance and synthetic collateral is excluded and currency rules have been tightened. The next CLO in the pipeline, arranged by Barclays with Pramerica as manager, may adopt a different approach to the problem of finding assets, with a larger bucket for bond collateral, said to be up to 40%. To maintain credit quality, this will need to exclude unsecured holding company bonds in favour of senior secured FRNs, close to loans in credit quality. Another obstacle to the resurgence of European CLOs has been Europe's skin-in-the-game rules. Thinly capitalised CLO managers cannot necessarily hold the required 5% of deal size from their own funds. For Cairn CLO III, the equity holder has committed to permanently holding 5% of the deal in the form of an M2 tranche, which comes with control rights not attached to the other equity notes. Execution on the Cairn deal seems to be running ahead of market expectations, with spreads on offer appreciably inside secondary levels for comparable deals. Guidance on the Triple As - said to have been largely placed to UK and Japanese banks - has been revised to 140bp area from 140bp-145bp, while there has been reverse enquiry interest in the Triple B tranche from three accounts. The latest word from Credit Suisse sales coverage to CLO investors was that they were seeing good interest up and down the capital stack.

CAIRN AS SYMBOL Given the "anaemic" state of the European primary loan market, according to one CLO manager, a full recovery in CLO issuance seems unlikely, even if Credit Suisse manage truly spectacular execution on the new deal. USD55bn of CLOs were issued in the US market last year. As well as the Barclays/Pramerica deal, two major CLO managers reported Citigroup and Bank of America Merrill Lynch approaching them about European deals, while JP Morgan and Deutsche Bank have also been named as prominent arrangers hoping to do a deal. The fee structure pre-crisis was typically 1.5% of deal size - equivalent to EUR4.5m on the Cairn trade - with another EUR1m each on rating agency and lawyer fees. Arranging banks can also expect to earn some carry warehousing leveraged loans ahead of a deal, though this has become increasingly costly in capital terms. One CLO manager said that the parlous leveraged loan market in London was, in part, a function of the dormant CLO market."It's a chicken and egg situation," he said. "Banks are reluctant to syndicate without a reliable CLO bid, while arranging new CLOs is hard without a reliable leveraged loan pipeline."Positive market sentiment across credit also may not help, though it buoys demand for CLO liabilities."CLOs can be seen as a bear market trade," said the CLO manager. "Lock in your cheap debt while you can, then use the reinvestment period to pick up assets when loan prices fall."Without a CLO market recovery - which depends on new primary supply - leveraged investment will gradually drain away from the whole leveraged loan space - limiting options for LBOs and refinancing of existing deals. CLO managers, including 3i, Alcentra and ICG, have been diversifying into unlevered loan funds, or other forms of sector leverage include using total return swaps - which effectively means buying loans on margin. These are easier to arrange than CLOs, but vulnerable to margin calls and mark-to-market declines - CLOs lock in debt for the long term.