By Prakash Chakravarti
March 29 (TRLPC) - Syndicated lending in Asia Pacific,excluding Japan, fell to its lowest quarterly tally in nearlysix years to US$80.48bn in the first three months of 2018, asfrenetic bond issuance from Asian borrowers trying to beatinterest rate rises and a steep drop in M&A lending suppressedloan volumes.
The first three months saw 176 deals completed, the lowestquarterly volume since the third quarter of 2012, whenUS$77.91bn was raised from 253 loans. It was also 17% lower thanUS$96.86bn transacted in the same period in 2017, when bondissuance was also strong.
Bond issuance (ex-Japan) by Asian borrowers in G3 currenciesin the first quarter already reached US$97.57bn, following onfrom the record US$407.93bn raised in all of 2017.
Several high-profile Asian credits such as India’s TataSteel Ltd and China National Chemical Corp (ChemChina)took advantage of bond investors’ hunger for yield,and locked in long maturities as the curtain falls on the era oflow interest rates.
"Volume from the loan market has been channelled to the bondmarket, as issuers rushed to raise money ahead of the US FederalReserve hike cycle of 2018,” said Aditya Agarwal, head of loansyndicate and sales at Maybank.
Some Asian companies raised smaller loans than planned aftersuccess with sizeable bond offerings. In January, Tata Steelreduced a proposed US$2.16bn six-year loan to US$1.7bn afterraising US$1.3bn from a dual-tranche bond.
ChemChina also opted for a loan-bond combination, raisingUS$10.35bn in March, including a US$5.5bn loan. The Chinesestate-owned chemicals giant has largely relied on bond marketsto refinance a US$12.7bn bridge loan it closed in September 2016to fund its SFr43bn (US$44bn) takeover of Swiss seeds andpesticides company Syngenta AG.M&A SLUMPM&A financings from Asia (ex-Japan) plummeted to US$4.42bn inthe first three months of the year, down 55% from the US$9.79bnclosed in the first quarter of 2017.
A major factor for the slowdown was the effect of measuresin the past 18 months from Chinese regulators to control capitaloutflows. China, Asia’s biggest event-driven financing market,produced only one M&A loan for a mere US$100m in the firstquarter of 2018, in stark contrast to US$4.81bn in the sameperiod in 2017.
However, several M&A loans are expected to boostsecond-quarter numbers, including a US$3.38bn loan to fund theequity contributions of the members of a consortium thatacquired Global Logistic Properties Ltd, a US$1.6bn loan backingPhilippine conglomerate San Miguel Corp’s loanstotalling US$4.06bn-equivalent in Taiwan for AdvancedSemiconductor Engineering Inc and footwear maker PouChen Corp, among others.
Despite the general regional slowdown in lending, Hong Kongand China continued to dominate activity in Asia (ex-Japan).Hong Kong contributed 28% of Asia (ex-Japan) loan volumes atUS$22.35bn in the first quarter, down 6% from US$23.78bn at thesame point last year. China, despite tumbling 48% to US$17.12bnfrom US$32.95bn a year earlier, took a 21% share.
Malaysian oil and gas giant Petroliam Nasional Bhdwrapped up a US$8bn loan for its Refinery and PetrochemicalIntegrated Development (RAPID) project, almost two years afterthe financing first emerged. The loan, Asia’s largest in thefirst quarter, boosted volumes to US$8.74bn, the highest for thecountry since the turn of the century.
Singapore and Taiwan were the only major loan markets in theregion to record significant growth in first-quarter lending.Singapore skyrocketed 94% to US$10.14bn from US$5.24bn a yearearlier, while Taiwan’s tally of US$6.29bn was 68.4% higher thanthe US$3.73bn raised in the first quarter of 2017.JAPANESE APPEALLending to Japanese companies also fell 18.4% in the firstquarter to US$69.68bn from US$85.36bn in the first quarter of2017, although its banks and insurance companies provided goodliquidity to foreign borrowers eyeing long-term loans.
Indian state-owned power producer NTPC Ltd andAustralia’s Sydney desalination plant tapped the Samurai andNinja markets, respectively, reinforcing the appeal of thedeals, which foreign companies raise in yen or other currenciesand are syndicated in Japan.
NTPC is wrapping up a US$350m-equivalent yen-denominated10-year Samurai loan, and Sydney desalination plant funded arefinancing that included a A$500m 11-year Ninja loan that wassyndicated to Japanese regional and cooperative banks and lifeinsurers.
“The benefit to borrowers is you are attracting a differentinvestor base to other capital markets,” said Drew Riethmuller,head of corporate and institutional banking, Oceania, at MUFG inSydney. “We believe this will continue to evolve given the widepool of investors in Japan.”PRICING FALLINGLower deal flow exacerbated the pricing compression forhigh-grade borrowers and continues to characterise lending inAsia Pacific as banks remain eager to lend to blue-chip firms,despite ever lower pricing.
“The lack of loan deal flow has also meant that banks havebeen struggling to meet asset growth targets, leading to furthercompression in spreads and more relationship-structured clubdeals in the region,” said Maybank’s Agarwal.
The US$8bn club loan for Petronas, with a 364-day tenor andan extension option of six months, attracted 19 banks despitepaying a tight interest margin of around 40bp over Libor for thefirst 12 months before it steps up to 55bp.
Hong Kong real-estate giant Sun Hung Kai Properties Ltdmore than quadrupled its five-year refinancing toHK$21bn (HK$2.68bn) and attracted 16 banks. The deal offered anall-in pricing of 75bp based on an interest margin of 65bp overHibor.(Reporting By Prakash Chakravarti; Additional reporting bySharon Klyne; editing by Tessa Walsh and Vincent Baby)
