February 28, 2020 / 8:41 AM / a month ago

Trip.com braves travel freeze

* Loans: Underwriter StanChart invites commitments to US$1.2bn financing

By Apple Li and Evelynn Lin

HONG KONG, Feb 28 (LPC) - Sole underwriter Standard Chartered is facing a stern test as it steers a US$1.2bn loan for Chinese travel agency Trip.com Group through syndication amid dire conditions for the tourism industry as a result of the global coronavirus outbreak.

The bank is seeking sub-underwriting commitments of US$300m apiece from a select group of international and Chinese lenders for the deal, which comes as the spread of the virus has forced more countries to close their borders and impose strict quarantine measures. Trip.com’s stock is down more than 20% since mid-January, and it has delayed the announcement of its Q4 and full-year results to March 18 from February 26 in order to give investors more visibility into the outlook for the current quarter.

Initial indications from market participants pointed to some support from heavyweight Chinese banks, which will likely determine the mood among the wider lending community.

“We are aware of the impact the virus might have on the credit, but we decided to go ahead given it is a top-tier borrower and an industry leader,” said a Hong Kong-based banker at a major Chinese bank, which is seeking credit approvals to commit to the deal.

Trip.com, formerly known as Ctrip.com, is a barometer of sentiment among lenders for businesses that have been directly affected by the virus that continues to spread rapidly around the world.

The travel sector is facing a slump in demand as a result of containment measures aimed at curbing the spread.

Italy has reported more than 400 cases, while South Korea raised its disease alert to the highest level after confirmed cases jumped to 1,595 as of last Thursday from less than 100 around a week earlier.

LOCAL SUPPORT

International lenders, understandably, are cautious about committing more funds, especially with lack of clarity on how badly the virus has hit Trip.com’s business.

“It’s obviously a tough time for tourism enterprises like Ctrip, which is faced with challenges of falling revenues on the back of diving demand. We will be more conservative in lending to the virus-hit tourism sector as we don’t know how the virus will affect the industry in the long term,” said a senior loan banker at an existing lender.

Some also felt the borrower is back to the market too soon after completing a US$2bn three-year loan last July. Of the 19 banks participating in that deal, including the mandated lead arrangers and bookrunners, 15 were from China.

Chinese lenders are again expected to dominate the new loan in what would be seen as supporting state policy.

“The message from the Chinese government is to be accommodative, especially to borrowers from sectors that have been impacted by the virus,” said a senior loans banker at an international bank.

“A lot of onshore liquidity in China will be made available, which means Chinese banks will dominate lending in the coming weeks, if not months,” the banker added.

SARS EXPERIENCE

Other Chinese borrowers have managed to tap into Chinese liquidity in difficult periods in the past. Last November, Huawei Technologies approached mainly Chinese lenders for a US$1.5bn loan after foreign banks snubbed a similar-sized financing for the telecom giant a few months earlier, after the US put the firm on an export blacklist.

Some international lenders shied away from lending to Huawei, despite the company’s solid performance, in the face of the sanctions and an economic slowdown in China stemming from the country’s ongoing trade war with the US.

Trip.com weathered the outbreak of Severe Acute Respiratory Syndrome, another coronavirus that killed hundreds in China and Hong Kong, in 2003, going on to complete a popular listing on the Nasdaq in December that year.

Trip.com made a loss in the second quarter of 2003, the height of the Sars crisis, with revenues down 42%, before rebounding in Q3, when its top-line revenues surged 196%.

The strong performance was due to a swift turnaround for the travel industry in China following a three-month travel downturn during the Sars period and a broader recognition of the Ctrip brand.

Some market participants are optimistic about Trip.com’s prospects this time too.

“Once the restrictions on travel are lifted, Ctrip will recover with a higher monthly run-rate. Business executives affected by travel restrictions in January and February could look at resuming travel around April or May. That’s when Ctrip’s numbers will pick up,” said another loans banker in Hong Kong.

Trip.com has also significantly increased its non-Chinese operations in the last few years, with the acquisition of fares search engine Skyscanner, an increase of its stake in India’s MakeMyTrip to 49% and the announcement of a partnership with TripAdvisor last November. Trip.com’s international air ticketing volume (excluding Greater China destinations) has enjoyed triple-digit growth for the past 12 quarters, according to its last earnings statement.

Reporting By Apple Li and Evelynn Lin; additional reporting by Prakash Chakravarti; Editing by Steve Garton

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