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Building relationships - the interview to "TOP-100" of PJSC "Ukrsotsbank", UniCredit Bank™, and "Kreativ Group", experts


Why and how should the company build long-term relationship with the bank? Why did financial establishments stop thinking about agrarian sector as of debt pit? Who leads negotiations and how to unite the risks of the state with the international demands? These were the topics to discuss for Sergey Tsarelung, 1st Vice-President, Head of Large Corporate Clients Department of PJSC “Ukrsotsbank”, UniCredit Bank™, and Yuriy Davydov, CEO of “Kreativ Group”, in the interview to “TOP-100”.

Now the agrarian sector seems like the main object for crediting. Is it so and what has been changed in the relationship “bank-agro company” during last years?

SERGEY TSARELUNG: A lot has been changed. 7-8 years ago crediting of agriculture was very risky and in general it brought to bad loans. Nowadays agriculture is one of the leading sectors. Previously there haven’t been the companies with land bank of 300-400 thousand hectares. Today the situation has been changed fundamentally. For example, the farmer, operating with even rather small land bank of 10-20 thousand hectares, is nowadays much more competent in the issues of modern technologies, pricing, business approaches. Such development was possible thanks to the entrance of foreign players to this market. That is why agro-industrial complex is one of the sectors, on which the banks concentrate their efforts.

YURIY DAVYDOV: Actually, agrarian sector has become one of those, which get loans. The entire agro-industrial complex has changed in better direction. From the point of view of corporate strategy management this gives the opportunity to position oneself from the more favorable side. We are constantly working in this direction; we focus on communication with the banks and investment companies.

Nevertheless, the sector is very much dependent on weather, sudden duties, imposed by the Agrarian Ministry of Ukraine… Doesn’t it stop the creditors?

Y.D.: Despite all the risks, the profitability of the sector remains at a high level even in bad forecasts, and capital goes after high incomes for the investments.

S.T.: Indeed, the sector is influenced by many external factors. For example, imposition of export quotas in previous season negatively influenced financial condition of many traders. It is important for the bank to understand, if the management of the company understands the existence of such risks and how it would act when such situation arises. In our practice it has happened several times, and not only in the agrarian sector. However we supported our clients and it resulted in more solid and reliable relationship. Our strategy – is the development of long-term relationship with the clients, and influence of external factors to business is an integral part of this process.

How much do the terms for the old-time and new clients differ? Can the company count for the more profitable interests in the bank, with which it has been cooperating for long time?

Y.D.: Relationship with the bank does not mean short-term cooperation. It is always a cooperation, which should be built during long time and focus on the trust between the parties. As, for example, there may happen some unforeseen situations during loan repayment – conjuncture may change, a new duty may be imposed, and the company will face a difficult situation. Here, a trust of the bank is very important, which puts its faith in management and understands that they will not give up and reimburse the loan. Such relation is formed gradually. You cannot receive big money in the first year. For example, when we started the cooperation with UniCredit, we received a loan of USD 50 million. Today we borrow USD 300 million from a syndicate of international banks, among which there is UniCredit. And the banks trust us. We try not to work with many – we have chosen three banks, which we consider as our partners. In principle, there a few financial establishments at the market, which understand the needs of the company and can offer us the right products. General crediting of 12% per annum does not suite anyone. Banks-partners may give us long-term loans with the rate of around 10% and short money – under 6%.

S.T.: Accurately developed structure of the deal, letting the banks to minimize and distinguish possible risks, can significantly decrease the cost of financing. For example, we propose to large agro traders a structured pre-export financing, which is much cheaper in comparison to ordinary and non-structured financing of working capital. However credit history of the client remains one of important factors. For the partners, with whom we have a positive experience of cooperation, we are ready to participate in longer projects, such as financing of M&A and long-term investment projects, taking high risks.

How can the bank, not being a player of agro sphere, adequately appraise the management of the company? At the same time what should the company do be duly appraised?

S.T.: For the deeper understanding of clients’ business we have created departments, which focus on specific sectors. Such approach lets the managers a possibility to concentrate on separate sectors. This helps to better appraise the risks of the company and carry out a benchmarking assessment of the players in this sector. The process of appraising the company is held on a constant basis, and the quantity of management is the key issue here. A chain and execution of previously declared plans, strategy and financial indices is one of the main qualitative criteria for the management assessment.

Y.D.: There is a kind of a level, which should be reached and followed. In order to work with large banks in large projects, the company should dispose international audit and for several years, follow internal standards of reporting, budgeting, issues, related to internal outlook. The company is preferably to have ratings of international agencies. This all gives a specific responsibility to the management.

You are speaking of things, standard for the majority of the states. How do banks consider the risks of the state and how do companies justify them?

S.T.: Today the risks of the state are the main restraining factors for the market participants, and moreover for international banks, which influences the volume and price of financing. PJSC “Ukrsotsbank” is a subsidiary bank of a large international financial group UniCredit, which has subsidiary banks in almost all the states of Eastern Europe and as a result, a large experience in appraising such risks. This lets us to implement more aggressive strategy of development in accordance to competitors.

Y.D.: many bankers understand that the state has its peculiarities, or, at least, try to understand. Otherwise they will not work in Ukraine, as they will not work in Brazil or any other developing state. Moreover we do not cooperate directly with foreign banks. Even working with them via export crediting agencies we did business with their local representations. Besides this all standard products are adapted for Ukraine. Our first credit line on financing exports was “raw”, and we have improved it recently taking into account to whom we sell oil and why the structure of sales was like that.

In other words, it is actually senseless to just mark off generalized demands?

Y.D.: If the bank formally approaches to the business and offers products exclusively under Western standards, this will lead to losses for both parties.

Who should lead negotiations on loans at the stage of building relationships between the bank and the company?

Y.D.: I think, the banks would like to see CEOs or owners of the company – they would like to understand their vision of development strategy. I have a friend, who manages the portfolio; he always says that if any crisis happens, he must understand how the shareholders will behave. That is why a shareholder or CEO must start the negotiations with the financial director. But only to start.

S.T.: The method, when the possibility to grant a loan was established basing on the results of meetings between the Top-management has been getting out of date already. Nowadays the manager, who issues and services the loan, bears personal responsibility for it. At the meeting of management, the presentation of company is shown as usual, and there may be some principal arrangements agreed, but the strategy of development, business model, structure of potential transaction are in the competence of a relevant manager.

If the owners or CEOs have come to an agreement, the middle cell of the management may cancel their decision and reject a loan?

Y.D.: The middle cell may both lead the deal to a conclusion and reject it. The cooperation at the level of middle cell is very important.

S.T.: We will not agree any deal without taking into consideration the opinion of the manager, who appraises the model of company’s development. His/her opinion is one of key factors in further process of decision making.

How did the long-term relationship change when the crisis had started? Who and how reacted?

Y.D.: Some stopped being partners, closing all the programs. Others took such position: it is hard for us, but we continue working with you. Now we are working with only those, who went through the crisis till the end. It affected us less than for example it was with metallurgy – the structure of consuming raw materials has been changed, we stopped buying expensive tropical oils, started to make cheaper products. Although we have experienced sharp wrapping of credit programs, and understood that the banks would have cooperated then with only those companies, which match international demands. They started to more precisely appraise the indices, implemented new norms, tightened the demands on reserving; and we, in our turn, understood that we had to get ready to tougher demands, to have appropriate ratings and to lead not aggressive, but more weighed strategy.

S.T.: Though it was not the first crisis in our history, the majority were not ready to it. The key issue was the quality of management and, consequently, measures, taken to overcome the crisis. Many companies, which did not have long-term development strategy, high-quality management, adjusted business processes, and were growing primary thanks to the general growth of economy, ceased to exist. The companies, which today develop successfully, proved they were able to change and adapt to new conditions. We went through the whole crisis with such partners and today they form the main portfolio of the bank.

How did the bank work with clients during the crisis?

S.T.: first of all we held an analysis of credit portfolio, short-term liquidity risks and basing on these we were signing restructuring agreements, adapted to new realities of the market. But the main thing, which we did, - was the confidence, we gave to our clients, that we were ready to go through the crisis together with them.

Y.D.: When we were starting the business, the banks gave us the push for the development. The majority of financial establishments give money only under pledge, and our partners let us take them without pledging main funds. By the way, tough demands of the banks help us adequately appraise our ideas: sometimes to restrain the growth of an aggressive developing company is very useful for the company itself.

To what extent are you ready to excuse the breakage of redemption terms, when the difficulties at the market start?

Y.D.: Sudden non fulfillment of obligations is unacceptable. I would not believe that it was impossible to foresee, as if the obligations were not fulfilled, the company must have known about the risk of such breakage even before. This all should be discussed from the very beginning, for not to have problems in future. Excuse is not possible, but smoothing is.

S.T.: As usual, structured financing means a set of special terms aimed at detecting possible risks during the validity of a financial instrument. Non fulfillment of such terms leads to a possibility of a default and the bank may demand pre-term pay-off. Nevertheless, the bank may change primary terms and conditions of a credit agreement, but it should be accompanied with objective explanations of reasons from the client’s side. Transparency of partner’s actions is the key point here.

To what extent is the client’s reputation, set beyond your relations, important to you?

S.T.: The client’s reputation at the market has a significant meaning for the bank, and this is a key factor for making a decision on cooperation. For example, if there is negative information about the company, which has been confirmed by bank services, we cannot open even a current account for such client.

Recently there arose information that “Kreativ” rejected its debt in front of the American Fund “Eastend International”, having litigated the terms of loan pay-off. How did you explain this situation to the bank and how did the bank react?

Y.D.: It is a commercial dispute. Now there is a bad tendency when one party tries to make the conflict public in order to press the company. I do not understand why to make public the things which are now considered in the court? We do not publish the information that we the money were not returned to us. These are commercial relations.

S.T.: “Kreativ” is a large company and has commercial relations with hundreds of counterparties, that is why commercial disputes may appear from time to time. A complete transparency and timely data submission from the client is very important for the bank in this case. Such approach helps us to objectively appraise possible risks and take a final decision.

You are all the time speaking about the changes, and which systems in the company should be constant ones for it could efficiently cooperate with the bank?

Y.D.: There should be a constant approach of the manager to business management. The strategy may be changed but these changes should be understandable to all the partners. We may change the sun-flower processing for the production of sugar or transportation services, but we must explain this.

S.T.: The values and the approach to business should be constant ones. All the rest may change – strategy, business model and demands.

Source: "TOP-100"

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