| HONG KONG
HONG KONG May 19 Asian banks are growing
increasingly wary of lending to lending to Chinese privately
owned enterprises (POEs) as problems emerging on offshore loans
stoke fears of higher default levels.
Two privately-owned Chinese companies - Labixiaoxin Snacks
Group Ltd and China Lumena New Materials Corp
- are negotiating with banks after their shares were
suspended from the Hong Kong stock exchange in March.
The issues with both companies are making banks more
cautious and other similar loans are taking longer to syndicate.
"Two other offshore loans are not going so well at the
moment which could be related to the market's increasing
concerns over POEs after the China Lumena issue," a loan banker
at a Taiwanese bank said.
No offshore loans have defaulted yet, but bankers are
nervous after domestic bond defaults in March. Premier Li
Keqiang said that further defaults would be "hard to avoid",
signalling that the Chinese government has become more reluctant
to step in to support failing companies.
Private Chinese companies flocked to Hong Kong in 2013 to
raise cheaper offshore loans after government regulations made
onshore dollar loans more expensive.
The Hong Kong Monetary Authority has however taken steps to
curb lending to China after last year's boom and is scrutinising
all loans to Chinese companies, sources said.
Offshore syndicated lending to privately owned Chinese
companies has slowed dramatically as a result. Volume has fallen
to $2.1 billion in the year to date, compared with $12.9 billion
a year earlier, according to Thomson Reuters LPC data.
PricewaterhouseCoopers (PwC) has resigned as auditor of
Labixiaoxin Snacks Group Ltd after auditing China's
second-largest manufacturer of jelly products's accounts since
Labixiaoxin held a lender call on May 13 about amendments to
an existing $75 million loan after agreeing a waiver to avoid
breaking loan covenants following its share suspension and
delayed annual results.
China Lumena New Materials Corp also asked lenders to
postpone repayments on an $85 million, one-year unsecured
offshore loan on May 2 and is also in talks to amend the
maturity date of $120 million of convertible bonds.
The company put a $120 million loan refinancing on hold
after Lumena's shares were suspended on March 25 when it said
that it needed more time to finalise 2013 accounts.
Taiwanese banks are the most active lenders in Asia
Pacific's syndicated loan market. They were previously strong
supporters of loans for private Chinese companies, which
borrowed $26.7 billion in Hong Kong in 2013, and accounted for a
third of Hong Kong's total volume.
Recent experiences have however made Taiwanese banks far
more cautious about lending to private Chinese companies. Some
syndications are proving difficult and taking longer to close.
"They (Taiwanese lenders) are taking longer in their credit
processes and credit committees are asking more questions about
POEs," said a syndicator from an arranging bank.
Deutsche Bank told lenders to Labixiaoxin's existing $75
million loan that the company is proposing to increase the
interest rate of the outstanding amount on the May 13 call,
Labixiaoxin has also proposed to repay $11.25 million or 15
percent of the outstanding loan by May 16, with the remainder
repaying according to the original repayment schedule.
Several banks asked Labixiaoxin's chairman and CFO to
reschedule the repayment plan. Lenders also proposed that
Labixiaoxin put 50 percent of the principal into a debt service
reserve account (DSRA) after paying a 50 basis point fee to
banks that agreed the waiver, sources said.
PwC could not agree procedures needed to complete the audit
of Labixiaoxin's 2013 consolidated financial statements, as well
as the expected timing and proposed fees, the company said.
Labixiaoxin's recent appointment of HLB Hodgson Impey Cheng
Ltd as its new auditor contravenes the terms of the loan
contract, which require Labixiaoxin's auditor to be one of the
Big Four accounting firms.
The company's chairman has invited lenders to site visits
and arranged to meet them in Hong Kong this week, bankers said.
The company expects to release its 2013 annual results in late
(Editing by Tessa Walsh)