A continued shortage of lending from Western banks to emerging markets has helped to boost the performance of Cordiant Capital’s emerging market loan funds.
In its Annual Review the specialist emerging market loan fund manager says that new loans that it is writing continue to be at far higher margins than before the credit crunch – driving up its returns.
At the same time stronger economic performance across many emerging markets over the last year has meant that the list of its loans that Cordiant Capital has on its “credit watch” category has shrunk considerably.
David Creighton, CEO of Cordiant Capital, says that with the Eurozone banks being forced to add a minimum of an extra EUR106billion to their balance sheets, a continued shortage of lending in the emerging markets may push returns on such lending far higher.
Over the last 12 months to April 2011, Cordiant’s funds approved 19 investments, totalling USD419 million over 10 countries. The deals focused on asset based lending in infrastructure.
“The balance sheets of the global banks are still under pressure, which has meant that lending margins in much of the emerging markets remain far higher than pre-credit crunch levels,” says Creighton. “For what are low risk, highly collateralised deals, we are able to get very attractive returns.
“For those that are able to deploy new capital into the private debt markets, the conditions range from the benign to the very favourable. We are not expecting Western banks to be in a position to increase their long term lending to emerging market companies for a long time to come.
“A lot of European banks in particular, have been pulling in their horns in the last few months.
“The second major trend that creates such an attractive environment for us is that GDP growth continues to be stronger in the emerging markets than in the West. We are clearly seeing this in in the improving trading conditions of our portfolio companies.
“There is always a small number of loans where we are watching carefully the performance of the company but over the last year that number has dwindled. In some cases, we have actually been able to write back in full provisions that we have taken.”
