HONG KONG, Dec 30 (LPC) - Syndicated loan volumes in Asia
Pacific, excluding Japan, fell for the second consecutive year
slipping to a three-year low of US$463.8bn in 2016 as slower
economic growth and geopolitical turbulence curtailed bank
lending despite a surge in M&A activity from China that boosted
North Asian loans.
Lending in 2016 of US$463.8bn from 1,291 transactions, was
down 1.6% from US$471.26bn in 2015, and is the lowest annual
figure since 2013 when US$462bn was raised from 1,289 loans.
Fourth-quarter 2016 volume of US$103.14bn was also the lowest
fourth-quarter tally since 2012 and 1.85% lower year on year.
China, Asia's largest syndicated loan market, (ex-Japan),
led the market with a wave of event-driven financings backing
China Inc's overseas acquisition spree. It pushed M&A lending in
2016 to US$80.8bn, equalling the previous record set in 2007 and
almost 70% higher compared with US$47.86bn raised for the
segment in 2015.
"The loan market in 2016 has been supported by a significant
increase in M&A activity, with a broader universe of Chinese
corporates in particular being very acquisitive and completing
jumbo-sized, cross-border acquisitions as they look to acquire
technology and grow outside of their home market," said Amit
Lakhwani, head of loan syndicate & distribution, Asia, at
Standard Chartered Bank.
Asian lending and M&A deals in particular, received a huge
fillip with a US$12.7bn bridge loan for China National Chemical
Corp's (ChemChina) massive SFr43bn (US$43.45bn) bid
for Swiss seeds and pesticides company Syngenta AG,
which was the global M&A highlight of a volatile year.
The recourse financing was the largest from Asia (ex-Japan)
and was part of a bigger US$32.9bn debt package supporting
ChemChina's acquisition, which still requires regulatory
approvals. The debt also included a US$20.2bn non-recourse
bridge loan at the Syngenta level.
While Asian and European lenders participated in the
recourse and non-recourse loans, opportunities for international
banks to lend in event-driven loans for Chinese state-owned
enterprises are shrinking as Chinese banks continue to step
forward to lead the strategic segment.
"In 2016, we have observed the deal-corridor narrowing for
foreign banks wishing to play in the corporate and LBO
acquisition space, with the Chinese and Taiwanese banks playing
a far more predominant role across the board," said Lyndon Hsu,
head of leveraged and acquisition finance, Asia Pacific at HSBC.
Some privately-owned Chinese companies used foreign lenders
for their overseas forays. Chinese internet giant Tencent
Holdings Ltd raised US$3.5bn in an acquisition
financing in October from a group of 17 international and
Chinese banks for its purchase of Finnish mobile gaming firm
The acquisition was Tencent's largest and also the world's
largest buyout of a game developer. The financing was the
borrower's debut M&A loan and followed the completion of two
plain vanilla loans with tight pricing only a few months
The financings backing ChemChina and Tencent's acquisitions,
among others, boosted Hong Kong's loan volumes, which is a
centre for offshore Chinese borrowings. Loan volume in the
territory hit a record US$106bn, showing a 22% rise in 2016.
China and Hong Kong were the only Asian loan markets to register
activity of more than US$100bn, although overall China volumes
fell 9.1% to US$135bn in 2016 despite the record M&A boost as
the economic slowdown in the country took its toll.
India was the star among major Asian loan markets, showing the
biggest percentage increase in 2016, as the country's borrowers
tapped offshore loans frequently with state-owned oil and gas
companies and pharmaceutical companies raising funds for
Indian offshore borrowing of US$21.25bn in 61 deals was 37%
higher than 2015's tally. Indonesian companies also relied
heavily on foreign currency borrowing, which lifted the
country's 2016 total to US$12.58bn, almost 50% higher than in
2015. Both markets reversed declines seen in 2015 as their
corporates offered welcome diversification from lending to
China, which has dominated regional lending since 2013.
Japan posted an 8.5% increase in volumes to US$234.67bn,
compared with US$216.33bn in 2015, as borrowers sought to lock
in cheap long-term funding using hybrid loans in a negative
interest rate environment.
Taiwan saw the biggest annual decline in 2016, dropping 27%
to US$34bn as corporates grappled with a slowing economy,
mirroring similar issues in neighbouring China. Loans from
Greater China of US$285.22bn in 2016 were 2.1% lower than
US$291.28bn raised in 2015.
Australia saw lower activity for the second year in a row
with lending dropping 8.4% to US$72.8bn in 2016, while Singapore
was flat at US$38.68bn.
Other Asian blue chip firms followed Tencent's example and
were also able to reduce their borrowing costs tapping into a
deal-starved investor base.
Several high-grade credits including Chinese oil behemoth
CNOOC Ltd, Indian state-owned oil & gas bellwether
ONGC Videsh Ltd and financial services giant
Blackstone Group, among others, visited the loan markets
more than once during the year to raise funds, either for
refinancing or for acquisitions.
"Liquidity conditions remained strong throughout the year,
however subdued deal flow resulted in most loan investors
struggling for assets to meet budgets. This supply-demand
imbalance led to significantly competitive behaviour, which
resulted in pricing tightening across most markets, with
structures becoming looser and tenors being pushed out," said
The year also saw rare borrowers such as the Democratic
Socialist Republic of Sri Lanka, Hong Kong rail operator MTR
Corp Ltd and Airport Authority Hong Kong,
Malaysian banks Malayan Banking Bhd and Public Bank Bhd
, Indian mortgage lender Housing Development Finance
Corp, state-owned Bank Negara Indonesia,
among others, giving lenders opportunities to gain exposure to
Most of these borrowers returned to the loan markets after
several years to take advantage of lower pricing and abundant
bank liquidity. Sri Lanka made an impressive return to the loan
markets in September after an eight year absence to sign its
largest syndicated facility after increasing a three-year loan
to US$700m from a targeted size of up to US$500m.
Earlier in March, the Islamic Republic of Pakistan and the
Government of Mongolia also tapped loan markets, while the
Independent State of Papua New Guinea followed in November with
a debut US$200m five-year borrowing that is expected to be
launched into syndication in January.
While Asian borrowers enjoyed benign loan market conditions in
2016, the year ahead poses more potential threats as the full
impact of Britain's vote to exit the European Union, Donald
Trump's victory in the US presidential elections and the US
Federal Reserve's move to increase interest rates plays out
across global financial markets.
Industry participants are bracing for a different year in
2017 amid expectations of a further drop in China-related
borrowing as the country continues to grapple with a slowing
"After a lukewarm 2016 for the loan market dominated by
China-linked issuance, 2017 looks set to be different with an
expected rise in deal volumes from Southeast Asia and India and
potentially lower China volumes, influenced by talk of greater
control on capital flows and a slowdown in outbound M&A
activity," said Amit Khattar, head of loan trading and
syndication, Asia, at Deutsche Bank.
Meanwhile, lenders' focus to generate returns amid tepid
deal flow will keep pressure on pricing, as banks review their
strategies and higher funding costs force them to continue
culling customers or pass costs on.
"Banks continue to have excess liquidity to deploy and
report that they are short on assets, meaning these conditions
will continue into 2017, absent any major event," said Lakhwani.
"Loan pricing especially in US dollars could see a mild
increase from 2016 reflecting increased US dollar cost of funds,
while liquidity from investors will remain robust," said
(Reporting By Prakash Chakravarti; editing by Tessa Walsh)