| HONG KONG, June 30
HONG KONG, June 30 Syndicated lending in Asia
Pacific, excluding Japan, reached $206.6 billion in the first
six months of the year, backed by bulk borrowings from Hong Kong
blue chips and Chinese conglomerates.
The first-half volume was only a slight 2.4 percent drop
from the same period last year, and deals in the pipeline are
set to boost full year volumes further.
Hong Kong witnessed a record first-half volume at $44.8
billion as the special administrative region's top tier names
raised several jumbo financings including a HK$37.5 billion
($4.83 billion) term loan backing Power Assets Holdings'
spinoff of Hongkong Electric (HKE) in the
first quarter and a HK$15 billion financing for Hutchison
Whampoa company AS Watson to repay a shareholder loan.
Chinese companies are also a major contributor to Hong Kong
loan volume as they flocked across the border for cheaper funds
as liquidity tightened back home.
China offshore oil and gas firm CNOOC Ltd went to
Hong Kong to raise a $2 billion one-year bridge loan in the
first quarter, topping it up with another $1.5 billion loan in
Currently, China's largest grain trader COFCO Corp
is in Hong Kong raising a $3.2 billion syndicated
loan to back its acquisition of Noble Group Ltd's
agribusiness arm and repay a shareholder loan.
China's state-owned Bright Food (Group) Co Ltd
is also seeking an up to $800 million financing in Hong Kong to
back its acquisition of a majority stake in Israel's largest
food company Tnuva.
Chinese privately-owned enterprises were also tapping the
Hong Kong loan market. Online game developer Shanda Games Ltd
is in talks with banks for a $750-850 million financing
backing its controlling shareholders' buyout offer, while rival
Giant Interactive Group Inc sealed an $850 million
leveraged buyout loan.
"Greater China has been the story over the last 12 months
and that is going to continue," said Phil Lipton, HSBC's head of
loan syndications for Asia Pacific. "The loan market is in very
good shape...there is plenty of liquidity. It is a good time to
borrow for corporates."
Coupled with China's onshore lending of $30.9 billion,
Chinese companies made up roughly a third of the region's loan
"But what the market would like to see is broader based
growth," said Lipton. "With the elections out of the way in
India and Indonesia, we could actually see some good growth
SOUTHEAST ASIA'S CHARM
Indonesia's loan market continued its strong run from 2013
with $6.7 billion raised this first half. Indonesia had recorded
$12.7 billion of offshore loans in 2013, the highest level since
the 1997 Asian crisis.
Indonesian credits proved popular with retail lenders as
several deals were heavily oversubscribed. State-owned Indonesia
Eximbank's increased $788.5 million loan attracted 23 lenders in
general syndication on top of six mandated lead arrangers and
bookrunners. The export credit agency was initially seeking $600
"Retail lenders are turning to Southeast Asia, especially
Indonesia as well as Philippines, as alternatives to exposures
to China and India," said Boey Yin Chong, DBS Bank's managing
director and head for syndicated finance.
"Southeast Asia will not replace China volumes but there's
certainly growth and good value from assets there," he said.
Southeast Asia's loan volume has been increasing steadily
since 2010, accounting for roughly one-fifth of the region's
total loan volume. Singapore, the region's largest market, has
been recording annual loan volumes of $30-40 billion over the
past three years.
The Lion City saw $24 billion of loans this first half
supported by borrowings from commodities traders. This group of
borrowers have taken over the country's staple real estate
sector as the main source of lending volume.
Meanwhile, Australia came back strongly this quarter after a
somewhat stagnant first quarter.
First-half loan volumes in Australia reached $44.3 billion
in 2014 on the back of a mega $7.8 billion loan for Australian
billionaire Gina Rinehart's Roy Hill iron ore project. Volumes
were a 13 percent increase from the $39.3 billion recorded in
the same period last year.
The unexpected rise in volume was thanks to a robust second
quarter which saw $30.7 billion of loans completed.
Loan pricing was expected to rise in the beginning of the
year, given investors' higher return requirements and pressing
issues in Greater China, coupled with an expected increase in
However this expectation was not borne out due to the fierce
competition among lenders to book assets, with the exception of
some mid-tier Chinese credits and Indian corporates.
"Pricing, on the whole, is coming down and varies across the
markets and regions," said DBS' Boey. "Pricing has fallen except
for China onshore deals and some related sectors as well as
Indian ECBs, given that retail bank investors start to manage
further their overall exposures to these countries and sectors."
AS Watson paid an all-in of 115bp via a margin of 85bp over
Libor for its HK$15 billion, three-year bullet facility in May.
CNOOC paid an all-in of 130bp via a margin of 115bp over Libor
for its $1.5 billion, five-year bullet loan in June.
"Competition is really picking up among the leading banks,"
said John Corrin, ANZ's global head of loan syndication. "In
many cases, the competitive situation is such that borrowers
take a long time to put together deals, so deals tend to move
away from the syndicated market to club style facilities. They
tend to be tight priced, and tend to be a split between a small
group of banks, which harm the economics for leading players."
According to LPC data, average club deal size been
increasing steadily since 2009 to $430 million today, and yet
still shared amongst the same four to five lenders.
CNOOC's $1.5 billion loan was clubbed by nine banks while AS
Watson's HK$15 billion facility was shared among 22 banks.
"Borrowers going for club transactions cut out room for
underwriters and lower returns for banks as a result," said
Masumi Ito, general manager of Asia syndications with Sumitomo
Mitsui Banking Corp.
"Local currency bond investors are also providing huge
liquidity that compete with syndicated loan market," said Ito.
Indonesia's Gallant Venture Ltd reduced its deal
size to $164 million from an initial $410 million target after
issuing two bonds to partially repay the prefunded loan. This
resulted in the number of lenders in general syndication being
drastically cut to four from 23.
"Uncertain economic development and regulatory aspects in
various parts of the world put uncertainty on how liquidity will
look in the months ahead," said Atul Sodhi, Credit Agricole
CIB's global head of loan syndications for Asia Pacific.
Since the beginning of 2014, the Hong Kong Monetary
Authority has stepped up its scrutiny of banks' credit risk
management, asking lenders to show stable funding requirements
as well as agree to regular onsite examinations of credit
underwriting processes and stress testing. The increased
regulatory oversight came after a steep rise in offshore lending
to mainland Chinese companies in 2013. Syndicated loans issued
to Chinese companies in Hong Kong nearly tripled to $56 billion
from $20.7 billion in 2012.
Sixty-nine banks with relatively rapid loan growth had been
notified of the stable funding requirement, which requires
lenders to maintain a specific level of loan growth against a
stable funding requirement level.
As a result, many were watching their exposures to Chinese
Nevertheless, "we will learn to live with this rule and
manage from there," said DBS's Boey.
(Editing By Jon Methven)