June 30, 2014 / 2:02 PM / in 4 years

TRLPC: Greater China borrowing drives APAC lending to $206.6bn

HONG KONG, June 30 (Reuters) - 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 the second.

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 volume.

“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 there.”


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 million.

“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 dealflow.

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 credits.

Nevertheless, “we will learn to live with this rule and manage from there,” said DBS’s Boey. (Editing By Jon Methven)

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