More sovereign bond issues, more challenging for corporates?

Analysts say the worst of the financial crisis that hit Eastern Europe especially hard has passed but new euro bond and sovereign bond issues could make it challenging for corporations looking to tap the capital markets. Cheuvreux’s Simon Quijano-Evans explains why.

Impact of new sovereign bond issues from Reuters TV on Vimeo.

Of bees, bribes and bureaucrats

Russian banking and aviation magnate Alexander Lebedev, owner of London's Evening Standard, estimates that Russian bureaucrats have pocketed $500 billion in bribes in the past four years and corruption and red tape make Russia one of the worst places to invest on earth.

On the scale of bureaucratic outrages, Lebedev hit a personal low when the authorities asked him to produce a 100 page report on bee poo. They claimed to be concerned about the excrement produced in the hives at one of his farms.

"The conditions for entrepreneurship in Russia are simply horrible," Lebedev told the Reuters Russia Investment Summit.

Lebedev has plenty of suggestions how to cure the disease. One of them would be to fire at least half the bureaucrats. "They are wealthy people. Let them go to Saint-Tropez," he said.

One could wonder how billionaire Lebedev gets away with criticism of the Kremlin while his peers who had dared to challenge authorities had to flee to London or are serving prison terms in Siberia, like the oil magnate Mikhail Khodorkovsky.

Lebedev, a former KGB agent like Prime Minister Vladimir Putin, says Putin is open to criticism and these are mainly mid-level bureaucrats who are causing trouble. "Putin is a hostage to the tradition of a corrupt country," says Lebedev.

But he says Khodorkovsky must be freed and often repeats "God Forbid" when mentioning other fallen oligarchs.

Perhaps having a critic like Lebedev is valuable for Putin -- if the prime minister does launch a fresh crackdown on corruption or major regulatory reforms, he will immediately have a cheering section. And without Lebedev, the Russian corporate landscape would be too dull.

Moscow: The least worst place for your money

   Russian investment bank Renaissance Capital was a big backer of Moscow's ambition to become a major emerging-markets financial centre, a bridge between European and Asian capital, a rival to Dubai.

    It not only trumpeted the idea, but was one of the first big local firms to take out offices in a sleek glass skyscraper by the Moscow River, surrounded by foundation pits and towers of naked steel girders that were to become Moscow's Canary Wharf.

    Then the financial crisis hit in September 2008, knocking back the city's ambitions.
    Renaissance Capital President Ruben Aganbegyan said, however, that other world financial centres were inadvertently helping Moscow's case despite its setbacks.
    "A lot of people in the world are doing everything they can to help us," Aganbegyan told the 2009 Reuters Russian Investment Summit. "Like the UK raising taxes."
    Russia instituted a 13 percent flat income tax rate in 2001 to stop rampant tax evasion. Earlier in the day, Finance Minister Alexei Kudrin told the summit that Russia would try to avoid raising taxes to cover budget deficits for at least three years

Lessons from children, old ladies

China’s banking system could take a cue from children and
neighborhood social groups to strengthen lending rules and
ensure that credit flows to where it is needed most.

The country’s banks lent a whopping record 7.37 trillion yuan
($1.08 trillion) in the first half of the year, but regulators
worry that a significant portion is not flowing into the real
economy and smaller firms where funds are needed the most.

“If you give children money without strings attached, they
won’t value it,” Yang Zaiping, the executive vice president of
the China Banking Association, said at the Reuters China Investment

Yang was making a point about firming up banks’ credit policy
to ensure that borrowers understand the importance of maintaining
their credit-worthiness.

The executive said a traditional Chinese network of neighbors
and old ladies that watched after neighborhood safety and other
local issues could be copied to help channel funds into small and
medium-sized companies, a long-standing problem in China.

“Old ladies know a lot about the neighborhood,” he said.

Yang said banks could lend to a group of small companies, and
as long as all repaid their loans, then interest rates would
remain low. But if only one borrower were to default, all would be
punished, putting more responsibility on all borrowers to ensure
each loan remains active.