Christian Steffens

In July 2008, when the threat of mass redundancies hung over the capital markets divisions of most investment banks, UniCredit was hiring. Mike Hammond, co-head of capital markets at UniCredit, appointed Christian Steffens as global head of equity capital markets (ECM). Mr Steffens was then at Anglo-German corporate finance advisor Sietz and Partner and had previously headed Lehman Brothers' German and Austrian ECM and equity-linked teams until 2002.

Quietly spoken with two decades experience in corporate finance, Mr Steffens was given a clear task to make UniCredit Group's sprawling ECM business more cohesive. "Mike Hammond hired me to pull the various parts of the ECM business together. We have strong regional business in Germany, Austria, Italy, Poland and wider central and eastern Europe (CEE) including Russia, and each business was operating largely independently," he says. The process of creating a single unit capable of exchanging ideas, expertise and market knowledge is now largely complete, including central databases and regular meetings across the 45-member global ECM group. The equity research team is undertaking a similar process.

Echoing the description Mr Hammond himself often uses, Mr Steffens refers to UniCredit's strength as a "multi-local" bank, but explains that it is aiming to add an extra dimension. "We generally have a local presence in each country, we have always been seen as the local bank to win mandates, but what we have been doing is creating the awareness with clients that we also have an international presence," he says.

Under pressure

In this respect also, UniCredit seems to be running against the prevailing currents in global banking. Many of the large cross-border banking groups that have needed government assistance are under pressure to focus on their home markets at the expense of the international presence they have so recently and expensively acquired. UniCredit last month said it will seek a €4bn capital injection from the Italian and Austrian governments. Despite this, Mr Steffens says there are no plans to alter the position of his group's CEE business as one of its core activities.

"We are here to stay, we are not pulling back from the region. For the first nine months of 2008, the whole CEE region made up one-third of the profits of the group, which is pretty substantial," he says. UniCredit has a top-five position as a commercial bank in the four Visegrad countries (the Czech Republic, Slovakia, Hungary and Poland), which provides a solid base for catching ECM business. Mr Steffens also criticises widespread perceptions of emerging Europe as "one homogeneous mass", pointing out that aside from Ukraine, Hungary and the three Baltic states, the major economies in the region are still forecast to grow in 2009 – unlike most of western Europe.

Joining the club

In UniCredit's three home markets of Italy, Germany and Austria, Mr Steffens says listed companies still tend to lag behind those in the UK in acknowledging the potential need for recapitalisation, both as a cushion against the faltering global economy and to provide ammunition for opportunistic acquisitions. But the denial cannot last forever. In Italy, oil company Eni and utility Enel are already undertaking deep discount rights issues, and Fiat is facing calls to follow suit.

In view of the still nervous public markets, Mr Steffens sees private investment in public equity (PIPE) structures as a dominant theme, to enable strategic buyers, private equity investors or "club" deals to underpin rights issues. UniCredit worked on the capital raising for German fashion designer and retailer Escada, which brought in the Herz family with a 10% stake through a non-preemptive rights issue at market. This was followed by a further rights issue to existing shareholders, also at market and backstopped by an agreement from the Herz family to buy unexercised rights. In the end, this secured the Herz family a stake of about 25% in Escada and allowed the company to secure financing at market rather than at a discount.

UniCredit used the same structure in a balance sheet repair exercise to secure financing for the German shipping finance company MPC Capital, where private equity firm Corsair Capital backed a 10% capital increase at a premium to the prevailing market price. This was followed by a rights issue at the same price, guaranteed by shareholders Corsair Capital, MPC Holding and Oldehaver agreeing to take up any unsubscribed shares. The transaction secured financing at a premium to the prevailing market price with immediate execution at the beginning of 2009.

In a similar vein, UniCredit is also working on a capital raising of about €450m for troubled German television station Premiere. This has involved seeking a waiver from German financial regulator BaFin, which would allow the Murdoch family's News Corporation to buy a 40% to 70% stake in the company without triggering the usual requirement for a buy-out once a stake of more than 30% is accumulated.

"There are great opportunities for strategic investors to buy stakes without elevating the market price in the way that a public bid would," says Mr Steffens. "And private equity houses may become more interested in buying stakes in listed companies as an alternative to simply returning money to their investors."

Balance sheet required

Among strategic investors, sovereign wealth funds are particularly in vogue. UniCredit itself is now 5%-owned by the Libyan central bank, and this will rise to 7% if convertibles issued in February are exercised. But Mr Steffens emphasises that even the sovereign funds are no longer willing to make investments purely from their own reserves, especially after the losses suffered by many when they bought into US and European banks too early in the downturn.

"It is no longer possible just to ask for a cheque, everyone wants bank financing. You need balance sheet to be in investment banking today; you must often lend to win a mandate. We may not have an ECM team that can match the bulge bracket for size, but our lending track record works in our favour," he says.

He also believes the bank's corporate loan activity in the CEE region will help his team to identify opportunities. "We work increasingly closely with the corporate banking side, so we can offer market equity issues as an alternative to fresh loans, according to what best suits the needs of the customer," he says.

In particular, there are market fears that over-leveraged private equity firms run the risk of having to return their buy-out targets to leading creditor banks. "We have not seen it yet, the market is still in the phase of margin increases and loan restructuring, but 12 to 18 months down the line, we expect there will be some debt-for-equity swaps accruing in the market," says Mr Steffens.

The banks are unlikely to want to tie down too much of their capital by holding such investments on their own balance sheets for long periods, but will need to await appropriate conditions before taking companies back to market. "For the equity market, developments in corporate bond issuance should be the building block for greater stability. There has been significant issuance since the start of 2009 – the spreads are high, but they are stable at last," says Mr Steffens.

Until a broad-based equity market recovery sets in, initial public offering (IPO) activity will remain subdued. "But we are seeing interest in pre-IPO activity, people buying senior equity and awaiting a float at a later date. Everyone wants to be the next Warren Buffett," jokes Mr Steffens, who took his own career into start-up territory in 2003, when he founded online nursery retail company Jomodo, which he ran until 2007.

All quiet in the east

Mr Steffens believes the wave of recapitalisations will begin to move east in 2010, with PIPE and club deals probable as long as markets remain under pressure. A number of CEE governments such as those in Ukraine, Belarus, Serbia and Hungary are under pressure to privatise valuable assets in a bid to shore up government finances, but may be understandably reluctant to launch IPOs at this time. "Again, club deals are more likely, not bilateral, but three or four parties negotiating a purchase, without the government having to go to the public market," says Mr Steffens.

The Polish power sector could be an exception, after the successful 2bn zlotys ($579m) IPO of generator Enea in difficult market conditions in November 2008. There was a "club deal" element even in Enea's case, as 79% was allocated to Swedish energy company Vattenfall, with the European Bank for Reconstruction and Development taking a further 11%, so the float consists of the remaining 10% of the company.

Polish finance minister Jacek Rostowski visited London in late February to meet investors and argue the case for Poland's privatisation programme. The Polish government has now mandated UniCredit, alongside Goldman Sachs, to lead a potential IPO of another major energy company, PGE, which Mr Steffens describes as Poland's answer to Czech power bellwether CEZ. "This is the best Polish energy asset, with a 40% market share, so it is a deal that could still happen this year despite the tough markets. It is in discussion like everything else in this market, but it has the hallmarks of a deal that could get done and show the market is alive," he says.

Career history

Christian Steffens

2008 - UniCredit Markets & Investment Banking, head of equity capital markets.

2007 - Sietz and Partner corporate finance boutique, advised Deutsche Bahn on IPO and Evonik on dual track.

2003 - Jomodo, founder and managing director.

1999 - Lehman Brothers, executive director, head of German-speaking equity capital markets and equity-linked markets.

1995 - Merrill Lynch, director, corporate finance.

1990 - SG Warburg, associate director, European advisory and financing division.