Published: February 17, 2009
The worse situation in Eastern Europe, the better things seem to go for Blackstone’s European advisory team. In the last few weeks, it has won mandates advising the government of Ukraine and Latvia’s Parex banka on two of the biggest restructurings the CEE region has ever seen, and it is about to win another major restructuring mandate, rumoured to be with the government of Kazakhstan.
Not bad for a business that only launched in 2007. That was the year that Martin Gudgeon left his job as chief executive of Close Brothers corporate finance and joined Blackstone to head up its European restructuring business, reporting to John Studzinski, former head of investment banking at both HSBC and Morgan Stanley Europe, who joined Blackstone in 2006 to expand its North American and European advisory business.
Close Brothers’ restructuring business was a recognised leader in European work-outs, and Gudgeon’s team worked on major restructurings like British Energy and Parmalat. Blackstone, meanwhile, was the recognised leader in American restructuring, having advised on the bankruptcies of everyone from Enron to Xerox.
So far, Blackstone’s American restructuring team has had a good credit crunch. The bank is advising on the restructuring of AIG, which sources say is “probably the most complicated restructuring ever”; and Gudgeon’s team in Europe also won the mandate to advise the British government on the restructuring of Northern Rock.
As the credit crunch has shifted east, so too has the focus of Blackstone. In late November, it was hired, together with Credit Suisse, to advise the Ukrainian Cabinet as it tries to deal with the financial crisis.
According to a Ukraine cabinet document, Blackstone is being paid a monthly fee of €1m (US$1.26m) and another €3.5m on completion of the contract. It will also be paid all expenses, including bodyguards for staff.
Blackstone will co-ordinate Ukraine's US$16.4bn standby loan from the IMF, mediate between the government, the IMF and the World Bank and work on the country's stabilisation plan. It is also responsible for handling talks with Ukraine's creditors and developing a communication strategy for the stabilisation plan. The contract says Blackstone is not responsible for implementing the stabilisation plan or for its success.
A few days later, Blackstone won a mandate to advise Parex banka on its negotiations with its creditors, as it tries to roll over around US$1.09bn in syndicated debt. Blackstone was awarded the contract by the new chairman of Parex, Nils Melngailis, who used to work for Blackstone.
Sources at Blackstone say it has now won an even bigger restructuring advisory mandate in the CEE region, which is rumoured to be with the government of Kazakhstan.
Sources close to the bank say that guiding the CEE region through this crisis is an important job: “There’s an interesting collection of countries – the Baltics, Belarus, Ukraine – who have come into western capitalism, taken on significant debt, and now those economies and households are going to suffer. How we restructure that debt is going to be significant for the rest of the world”, a source close to the bank says.
They add: “In extremis, there are two different ways you can restructure. You can default, or you can try to work things out in a consensual manner. Everyone is trying to approach the situation in the latter way, to take the world from a highly levered economy to a less levered economy without a sovereign default. The risk is that, because we are so interdependent, if one country goes, there’s a clear risk of a systemic crisis. That could lead to isolationism, which is why everyone is working hard to avoid a sovereign default.”
The warning comes as the situation in Ukraine appears to be worsening. The finance minister, Viktor Pynzenyk, resigned in mid-February; citing disagreements with prime minister Yulia Timoshenko. The prime minister has also clashed with president Yushchenko over her (attempted) sacking of the central bank governor, Viktor Stelmakh.
Against the background of this typical political infighting, the IMF has frozen the second trance of its emergency loan, citing the government’s failure to cut its spending. Bankers in the country say that unless the EU steps in to support the country’s economy, it could collapse, which would deal a major blow to western European banks who have subsidiaries in Ukraine, such as Raiffeisen International, Unicredit, and BNP Paribas.
A default and economic collapse is also unlikely to endear either Blackstone or the IMF to ordinary Ukrainians who see their savings wiped out. Let’s hope they hired good bodyguards…