Credit financing might dip (The Slovak Spectator)

K dopadom hypotekárnej krízy v Spojených štátoch,
ktorá vedie k vyššiemu riziku na trhoch a predražovaniu úverov, sa
vyjadril pre The Slovak Spectator dňa 28.1.2008 Juraj Karpiš z INESS.

Credit financing might dip (The Slovak Spectator)

WITH the recent global credit crunch applying pressure on the financing of
deals, experts say the Private Equity sector in Slovakia is facing a tougher
environment. This could turn some investors more conservative, but, so far, private
equity players in Slovakia don't seem to be changing their investment plans.

The tougher environment means more caution when making acquisitions and, for
Europe, a key challenge will be developing alternative exit routes alongside
secondary sales, said Vladislav Severa, partner for Ernst&Young Transaction
Advisory Services in the Czech and Slovak Republics.

"However, market participants view this as a short term dip in activity
preceding a return to a more rational climate in 2008," Severa said.
"There is widespread faith in the private equity model, and the long-term
fundamentals remain strong."

Severa also said that the tightening of conditions for providing acquisition
loans might have an impact on the situation in Slovakia. But the question
remains to what degree.

"If the banks turn more cautious in judging credit risk, those private
equity investors who plan to draw acquisition loans will most probably be more
critical of acquisition opportunities," Severa told The Slovak Spectator.
"Therefore, only high quality projects which can carry the credit burden
will pass the process."

Slovak private equity investors expect that the cost of loans will swell and
the structure of financing might change moderately, while investors might use
more of their own resources in preference to bank loans. However, the players
do not expect any dramatic shake-ups on the market.

"In Slovakia, the result might be a short-term surge in the price of
money on the market," Peter Gabalec, chairman of the board of directors of
Slavia Capital, told The Slovak Spectator. "It could also mean a change in
the structure of financing of projects in favour of own capital. Thus, the
share of credit financing may partially drop."

The credit crunch in developed countries will most probably result in a
wait-and-see attitude among global investors, Gabalec added.

"The credit crunch will have a larger impact on the economies of
developed countries than the emerging markets," Gabalec said. "The
local banks of Central and Eastern Europe do not operate on the US markets, and
they have also been more careful when financing real estate, for example."

However, it might happen that some of the global investors will withdraw
some of their funds from our market to cover their losses on other markets, he

"However, the effect of the credit crunch should not be dramatic
here," Gabalec said.

Juraj Kováčik, manager of the department of investment risks of Penta
Investments, assumes that the availability of credit resources will drop, and
the exit will become more complicated as a consequence of the drop in demand.

However, the situation with the availability of loans to finance private
equity investments in Slovakia still differs slightly from that in developed

"The banks have a healthier portfolio, and thus they are less
risk-averse when providing new loans," Kováčik told The Slovak Spectator.
"But in the event of global recession, of course this no longer

The Institute of Economic and Social
Studies (INESS) said that the bursting of the mortgage bubble in the United
States led to huge losses among financial institutions. The measure, and, even
more importantly, the allocation of these losses is not yet fully known, which
increases the risks on the market and overprices loans, Juraj Karpiš, the INESS
analyst, told The Slovak Spectator.

Despite the fact that the core of the
problem is in the United States, the increasing risks on the financial markets
has a global impact, he said.

The second annual study by Ernst & Young on the business performance and
strategies of Private Equity concluded that the private equity industry is
still healthy and consistently able to grow and strengthen the companies under
its ownership.

The annual rate of growth in enterprise value achieved in 2006 by the
largest private equity-backed businesses significantly outperformed the
equivalent public companies in the same country, industry sector and timeframe,
the Ernst & Young study said.

Average annual enterprise value growth rates were 33 percent in the US and
23 percent in Europe, compared to public company equivalents of 11 and 15
percent respectively.

The Slovak Spectator, 28 Jan 2008

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