LONDON (IFR) - ICBC Financial Leasing has tapped Middle East lenders for a $500 million three-year loan, in a move to diversify its funding sources that highlights an alternative pool of liquidity for Asian borrowers.
The ICBC unit’s Gulf debut was impressive as it increased the loan amount from an original size of $300 million following participation from 10 lenders.
Sources said Emirates NBD was awarded the mandate on the borrowing on the condition that it would only syndicate the loan to other lenders in the region. Two Chinese banks participated via their Middle Eastern branches, but the remaining lenders were all local to the Gulf, pointing to growing appetite for Asian exposure in the region.
“The fact that the entire borrowing came from lenders in the Middle East should encourage bookrunners of syndicated loans to target that investor segment more,” said one loan syndicator in Singapore.
“Middle Eastern banks have long participated in Asian loans and their renewed risk appetite for Asian credit in the past year is a welcome development.”
Tapping into Middle Eastern liquidity is not new for arrangers of Asian loans. However, syndicating an entire deal of a meaningful size is unusual. Some believe Middle Eastern banks can provide an added layer of liquidity that bodes well for Asia, which relies heavily on Taiwanese lenders for retail syndication of loans.
Gulf banks could even step in to replace Taiwanese lenders if the cost of dollar funding goes up again for Taiwanese banks – as it did from early December 2013 until early July 2014, when the three-month TAIFX, Taiwan’s interbank U.S. dollar lending rate, stayed above 100 basis points after touching a two-year high of 160 bps in mid-March. During the first half of 2014, the increase in the cost of funds added pressure on Asian syndicated loans as Taiwanese lenders demanded greater returns.
Middle Eastern banks have steadily increased their participation in Asian deals as they have chased higher yields and looked to diversify beyond their home markets, where returns are wafer thin. Most notably, lenders from the Gulf region have increasingly participated in Asian loans for high-grade borrowers with connections to the Middle East, oil and gas companies or financial sector credits.
Indonesian auto-financing unit Astra Sedaya Finance was one of the first Asian borrowers to target Middle Eastern lenders for a $180 million three-year loan, with Citigroup, First Gulf Bank, RBS and SMBC as leads. The loan closed in August after attracting US$60 million in syndication from three banks from the Gulf region.
In December last year, Federal International Finance, an affiliate of Astra Sedaya Finance, closed a US$550m three-year loan with 28 banks participating and First Gulf Bank was the only lender from the Middle East. This was despite an unusual approach the borrower took in assigning syndication responsibilities to banks for specific markets, with First Gulf and SMBC tasked with distributing the deal to Middle Eastern lenders.
Given their voracious demand for capital, Indonesian financial institutions have also looked to Middle Eastern banks for diversification of their funding sources – something that could also play out with the Chinese leasing finance companies, which frequently borrow in the loan markets.
Chinese companies, such as ICBC Financial Leasing, Minsheng Financial Leasing, China Universal Leasing, CCB Financial Leasing, CDB Financial Leasing, CMB Financial Leasing and UniTrust Finance & Leasing, have raised around $5 billion combined this year in addition to $3.79 billion last year.
ICBC Financial Leasing’s latest $500 million deal comes on the back of a $690 million three-year onshore loan it signed with 24 lenders on Nov. 26. In May, the borrower raised $465 million offshore through two loans.