RLPC-APAC loans down 13 pct as onshore Chinese lending falls
HONG KONG, March 31
HONG KONG, March 31 (Reuters) - Syndicated loan volume in Asia Pacific, excluding Japan, dropped 13 percent to $76 billion in the first quarter compared to the same period of 2013, according to Thomson Reuters LPC data, as Chinese government moves to curb lending started to bite.
China was Asia Pacific's biggest loan market in 2013 but Chinese loan volume fell 73 percent to only $8 billion in the first quarter as China's central bank continued to rein in credit growth.
Hong Kong saw a 47 percent jump in loan volume in the first quarter to $19.6 billion. A handful of large acquisition transactions were carried over from the end of last year and Chinese companies continued to raise funds offshore.
These deals included a HK$37.5 billion ($4.83 billion) term loan backing Power Assets Holdings' spinoff of Hongkong Electric (HKE), a $2 billion one-year bridge loan for China offshore oil and gas firm CNOOC Ltd and a HK$10 billion dual-tranche acquisition loan for electric company CLP Holdings Ltd
North Asian lending made up only a third of Asia Pacific's total loan volume in the first three months of 2014, even after the significant increase in Hong Kong loan volume, compared to two-thirds in the same period of 2013.
Volume is also subdued in other markets including Australia which recorded $11.17 billion in the first quarter and Singapore with $7 billion.
Lower first-quarter volume contrasts with record fourth-quarter volume of $47 billion in Australia. China also had a strong fourth quarter with $31 billion of volume and Hong Kong recorded $20 billion, which contrasts starkly with a thin first quarter.
"2013 saw very strong volumes. It is inevitable that volumes look weak coming off a really strong fourth quarter. The market is adjusting to higher pricing conditions, and I expect that volumes will pick up in the second half," said Atul Sodhi, Credit Agricole CIB's head of syndications and chairman of the Asia Pacific Loan Market Association.
GREATER CHINA WORRIES
Taiwanese banks, which are Asia's biggest retail lenders, have been facing higher funding costs since late 2013 which has pushed up their return requirements and is limiting their ability to participate in finely priced loans.
Concern is also growing over lending to China after a series of recent defaults on bonds and renminbi debt, which prompted the Hong Kong Monetary Authority (HKMA) to ask banks to tighten approval processes on lending to Chinese companies raising offshore loans in Hong Kong in late March.
Nearly 35 percent of Hong Kong's first-quarter loan volume was for Chinese companies raising offshore loans. The share was 70 percent for the full year of 2013.
The pipeline is full of deals for Chinese companies including a $1 billion acquisition financing for Lenovo Group Ltd, an M&A loan of up to $800 million for Brightoil, and an $850 million leveraged buyout loan for US-listed Chinese online games developer and operator Giant Interactive Group Inc .
"Greater China takes up the largest share of this region, so any issues arising from this market could have a potential knock-on impact elsewhere," said Phil Lipton, HSBC's head of syndicated finance.
LOAN PRICING UP
Loan pricing is expected to rise, given investors' higher return requirements and pressing issues in Greater China, coupled with an expected increase in dealflow.
"Some deals may need to be repositioned with higher pricing requirements for retail lenders," said Boey Yin Chong, DBS Bank's managing director for syndicated finance.
A survey of retail lenders showed that most investors require minimum pricing of 250 basis points (bp), compared to around 150 bp a year ago.
"If banks were to underwrite deals of under 200 bp, they might have to rethink," said Boey.
Although most bankers think that pricing is rising, the first quarter still saw many loans priced below 200 bp that were agreed before concerns over China and Taiwanese retail lenders intensified.
A rise in pricing may not be seen until the second quarter. The last price increase was in 2011 at the peak of the Eurozone crisis, when European banks' funding costs soared.
"At this point of inflection, banks have to think hard when underwriting deals that are dependent on Taiwanese bank liquidity as this situation may persist until the middle of the year," said Boey. (Editing by Tessa Walsh)