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BASIS POINT-Abundant liquidity in wings for Asia M&A -APLMA seminar
HONG KONG, Oct 31 (Basis Point) - Asian M&A financing trends this year have been encouraging, but in a region with plentiful liquidity on offer for the right deals, deal flow is still lacking, according to panellists at the Asia Pacific Loan Market Association (APLMA)'s leveraged finance seminar in Hong Kong on Tuesday.
While loan volume globally and in the region is down significantly this year, the decrease in M&A financing volume is proportionally less.
"The trend for Asia is quite promising," said Julian Ostheim, head of acquisition and leveraged finance, Asia, at Credit Agricole CIB.
Panellists identified Southeast Asia and China as standout bright spots this year. Thai corporates Thai Beverage PCL and PTTEP sealed jumbo bridges backing offshore deals in Singapore and the UK, while Malaysian M&A activity has been supported by deep local liquidity. And China's CNOOC and Bright Food have made headlines with high-profile cross-border deals.
"The Southeast Asia market has strong momentum, but China remains an important market, with Chinese companies still keen to go offshore," said HSBC's Aaron Chow, managing director and head of event-driven syndicate, Asia Pacific, leveraged and acquisition finance, global capital financing.
CNOOC's US$6bn bridge backing its US$15.1bn bid for Canada's Nexen Inc recently garnered more than US$20bn in commitments from 20 local and foreign banks.
And financing backing the Alibaba Group privatisation was well received by the market, despite involving a holdco loan with debt to be serviced on a dividend basis, panellists said. Factors they cited in the financing's success were the strength of the credit, high regard for the asset, and loan pricing.
ROOM FOR MORE
Despite jumbo financings, a significant amount of bank debt is available to fund further offshore acquisitions, particularly in the investment-grade space. There is also room for more Asia leverage, panellists said.
"High-grade clients typically have access to the loan and bond markets," said Ashish Sharma, director, loan syndication, Asia Pacific debt capital markets, at Bank of America Merrill Lynch.
Potential takeout and advisory roles can help bolster support for large bridge loans, even with pricing trending downwards for some corporates, panellists said.
"There has been a very cautious leverage environment in the last 18 months, which has seen conservative, well-structured deals," said CA-CIB's Ostheim. "With the overall economic outlook stabilising or improving, there should be room to do more debt and more highly levered deals."
HSBC's Chow added: "The low interest rate environment is favourable to potential Asian buyers. Since quite some Asian companies have remained not highly levered, people have a lot of dry powder."
Expectation gaps that persist between potential buyers and sellers have put a brake on dealflow.
However, panellists were still optimistic the market will see an uptick in deals in 2013. "We have been looking at a number of opportunities and our pipeline is strong. I am very optimistic," said BAML's Sharma. (Reporting By Maggie Chen)
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