December 29, 2017 / 7:44 AM / 3 months ago

REFILE-Asia Pacific loans continue slide to five-year low

(Refiles to fix formatting)

By Prakash Chakravarti

Hong Kong, Dec 29 (TRLPC) - Syndicated lending in Asia Pacific, excluding Japan, hit a five-year low of US$445.31bn in 2017 and was 4.81% lower than US$467.8bn in 2016 as mergers and acquisitions activity slowed and record G3 bond issuance in dollars, euros, and yen curbed loan volume.

Asia Pacific lending has fallen for the third consecutive year and volume is the lowest since 2012 when the region raised US$306.65bn. In 2017, 1,245 loans were completed, which showed a 3.56% decrease from 1,291 transactions a year earlier.

Fewer acquisitions saw regional M&A lending sink 34% to US$55.74bn, compared to 2016 as Asian borrowers focussed on locking in long-term fixed-rate funding ahead of a widely-flagged rise in US interest rates.

“2017 has been another difficult and challenging year for the loan market in the region. The drop in volumes is the new normal .... as deal flow diverted to bilateral loans and the bond markets,” said Amit Lakhwani, head of loan syndicate & distribution Asia at Standard Chartered.

G3 Asian bond issuance (excluding Japan) hit an all-time record of US$407.93bn in 2017, soaring 38% over the US$295.53bn raised in 2016, as Chinese issuers dominated the flow.

Despite a muted year, the Asian loan market saw some variety, with sizeable borrowings for frontier market sovereigns such as the Democratic Socialist Republic of Sri Lanka, the Islamic Republic of Pakistan and the Independent State of Papua New Guinea. CHINA, HONG KONG DOMINANCE China and Hong Kong dominated regional borrowing and accounted for 49% of Asian lending, excluding Japan. Chinese companies borrowed US$101bn in 2017, which was 25% lower than US$135bn a year earlier.

Despite the Chinese government’s introduction of measures in the second half of 2016 to control capital outflows and slow down overseas acquisitions, outbound M&A event-driven financings for mainland Chinese companies surged 28.5% higher to US$18.37bn in 2017 compared with US$14.3bn in 2016.

This was largely due to a jumbo €6.8bn (US$7.9bn) loan in July for state-owned China Investment Corp, which backed its acquisition of European warehouse firm Logicor. It marked the sovereign wealth fund’s debut in the syndicated loan market and was the largest M&A loan from Asia in 2017.

Hong Kong loan volume rose to a record US$111.5bn, showing a 5% increase on US$106bn in 2016, boosted by big-ticket loans for Chinese companies, including technology sector bellwethers such as Alibaba Group and its unit Ant Financial Services Group, Tencent Holdings Ltd and e-commerce company

Leveraged buyouts also boosted Hong Kong’s tally with lenders flocking to the deals in pursuit of higher yields, as non-standard loans appealed to Asia’s increasingly diversified buy-side.

“New sources of liquidity have emerged in APAC loan markets with institutional investors stepping up,” said Ashish Sharma, head of loan syndications, Asia Pacific, at Credit Suisse.

A HK$28bn (US$3.6bn) term loan for the privatisation of then Hong Kong-listed shoe retailer Belle International Holdings Ltd stood out in July for a sole underwrite and smooth distribution from bookrunner Bank of America Merrill Lynch that attracted 10 other lenders.

Singapore contributed a significant boost to leveraged loans with the last-minute closing of a jumbo US$4.11bn LBO financing backing the acquisition of Global Logistic Properties Ltd , Asia’s biggest warehouse operator. The borrowing bagged the distinction of the largest LBO loan from Asia.

Australia and Japan also supplied a strong flow of buyout loans, although most of the Japanese deals were club transactions, such as three LBO financings totalling US$5.82bn-equivalent for PE giant KKR’s acquisitions of auto parts maker Calsonic Kansei Corp, electronic equipment firm Hitachi Kokusai Electric Inc and power tools manufacturer Hitachi Koki Co Ltd.

NEW LIQUIDITY POCKETS In Australia as well as in Hong Kong, the leveraged finance market took small steps forward with transactions structured with unitranches and mezzanine financings, tapping into the growing pool of institutional liquidity that is seeking to invest in loans.

In August, US alternative investment firm Highbridge Capital wrapped up a A$650m (US$512m) six-year unitranche financing to back private equity firms Carlyle Group and Pacific Equity Partners’ US$930m-equivalent acquisition of iNova Pharmaceuticals (Australia) Pty Ltd and two more unitranche loans closed in Australia shortly afterwards backing private equity LBOs.

Mezzanine financings also started to appear in other parts of Asia with the LBO of business, corporate and investor services provider Tricor Holdings Ltd in January in Hong Kong carrying a subordinated facility of up to US$75m from PE firm Partners Group.

In July Huatai Financial Holdings, the Hong Kong-based subsidiary of Chinese brokerage Huatai Securities, committed a HK$4.5bn mezzanine loan that represented 90% of the price for the privatisation of Chinese property developer Future Land Development Holdings from the Hong Kong bourse.

The facility was on track to be the biggest mezzanine loan from Asia Pacific (excluding Japan), but the public-to-private sale was shelved in October. Huatai’s big-ticket commitment highlighted the emergence of new liquidity providers, as traditional lenders also target exposure outside their core focus areas.

“Among the traditional bank investor base, lenders from some countries such as India and South Korea have expanded their focus and are increasingly participating in loans outside their home markets. This is quite encouraging as it adds additional pockets of liquidity for borrowers in Asia Pacific,” said Credit Suisse’s Sharma.

Indonesian borrowers in particular took advantage of this new liquidity and South-East Asia’s largest economy was the only major loan market apart from Australia to record double-digit growth in Asia (excluding Japan) with a 22% jump toUS$15.6bn, compared to US$12.81bn in 2016.

PROMISING PIPELINE After three years of declining volume, lenders are looking forward to a more promising pipeline that is already starting to take shape. China National Chemical Corp, which acquired Swiss seeds and pesticides maker Syngenta AG for SFr43bn (US$43bn), is currently in the market with a US$5.5bn refinancing of one of the multi-billion dollar bridge loans it raised for the acquisition.

The property sector in Hong Kong, one of the world’s most expensive real estate markets, is already buzzing with a couple of jumbo loans relating to the acquisitions of some of the retail assets of Link REIT and The Center, a commercial building in the heart of the territory’s business district.

“We will have a more promising start to 2018 because of a well-spread pipeline across Australia, China and other major markets. The difference between a good and a bad year is event-driven financing. Corporate M&A, project financing and refinancing will drive activity in 2018,” said John Corrin, global head of loan syndications at ANZ.

Bankers also expect loans to benefit from the expected rise in interest rates that could impact demand and access to bond market funding. China’s massive Belt & Road initiative, which aims to recreate the old Silk Road with massive infrastructure projects to connect China to Europe and beyond, will also provide lending opportunities as President Xi Jinping pledged US$124bn in a summit in May to turn his vision into reality.

“China Inc is expected to seek expansion opportunities, with increased activity in the ‘One Belt, One Road’ countries; this should spur M&A and related financings in 2018,” Sharma said. (Reporting By Prakash Chakravarti; editing by Tessa Walsh)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below