EU banks cut energy lending on economic woes

New York (Platts)--6Oct2011/555 am EDT/955 GMT

Economic troubles across Europe are reducing the amount of money available for lending to the energy sector, an international financial adviser said Wednesday.

"The top 10 [European] banks were frozen in their tracks," by the economic problems, Terry Newendorp, chairman and CEO of financial advisor firm Taylor-DeJongh, said on the sidelines of the Oil Council's annual Americas conference in New York. As a result of tightened regulatory scrutiny across the continent, banks "have to be much more restrictive," he said.

Newendrop is scheduled to speak Thursday on a session titled "The Rise of a New Global Capital Agenda."

Deals priced in US dollars have been especially hurt by the credit tightening -- and "virtually every oil project is dollar-based," Newendorp said.

He said "all French, German, and Spanish" banks have curtailed energy sector lending, with the exception of Santander. In the UK, Barclays Capital and RBS are still seen as active. "HSBC is hanging in there on a regional basis," and is still strong in the Middle East, he said.

Standard Chartered, a bank with roots in South Africa, is also a relatively active and resilient lender to the sector, Newendorp said.

In the face of cutbacks in energy lending by commercial banks, government-owned export and import banks have stepped up activity and are now viewed as go-to players, Newendorp said.

But the recent downgrades of municipal debt in Italy will send waves across energy deals that needs financing, Newendorp said. Moody's Investors Service said on Wednesday that it planned to downgrade the long-term ratings of 30 Italian sovereign entities, including regional and local governments as well as two related issuers.

"The rating outlooks are negative," Moody's said in a statement. "Deteriorating sovereign creditworthiness and the challenging austerity measures imposed by the central government are expected to affect sub-sovereign entities to varying degrees," Moody's said.

As a result of the downgrades, "[o]ur guys are scrambling right now," Newendorp said, adding that Taylor-DeJongh is advising an Australian oil and natural gas company that hopes to receive a loan from an Italian export-import bank. Newendorp declined to identify the company, saying only that the company has a lot of Italian industry-related equipment.

"We found them money ... now we don't know," Newendorp said.

While there are other sources of capital, including from private equity firms, the pricing is ""very different," and may be as much as three to five times more expensive than commercial bank loans, Newendorp said.

In the US, Newendorp predicted that Citi and JP Morgan Chase will soon step up energy lending profiles, while Wells Fargo is active on a regional basis. Small to midcap energy companies also are active in issuing bonds or issuing private placements through insurance companies such as Prudential or Hancock, Newendorp said.

--Leslie Moore Mira, leslie_moore@platts.com

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