June 28, 2019 / 9:10 AM / 3 months ago

APAC first-half lending slowest in seven years

HONG KONG, June 28 (LPC) - Syndicated lending in Asia Pacific, excluding Japan, fell to a seven-year low, with only US$198.52bn raised in the first six months of 2019 as the global economy reeled from the effects of the ongoing trade war between the US and China.

Lending in Asia in the first half of 2019 plunged 22% compared with the US$255.55bn raised in the same period last year. The tally for the second quarter this year was US$91.97bn, a 14% drop from US$130.43bn in the second quarter of 2018. Syndicated lending this year is the lowest half-yearly tally since 2012.

The number of loans continued to fall, with the second quarter clocking up 234 deals, compared with 355 in the previous quarter. The first-half tally of 589 deals was 16% lower than 700 loans closed in the first six months of 2018.

The trade war between the US and China was the biggest factor contributing to the decline.

“The global economy continued to suffer from the overhang of the trade war and uncertainty gripped the financial markets,” said Mildred Chua, head of syndicated finance at DBS Bank in Singapore. “Lending activity in Asia took a hit this year particularly due to the slowdown in China and the lack of blockbuster acquisition financings.”

Global economic headwinds will remain a challenge in the coming months pending a resolution of the trade dispute.

US President Donald Trump has threatened to impose tariffs on another US$325bn of goods, covering nearly all remaining Chinese imports into the US, including consumer products such as cellphones, computers and clothing.

Earlier this month, Christine Lagarde, managing director of the International Monetary Fund, said in a note to G20 finance ministers and central bank chiefs that US-China tariffs – including those implemented last year – could reduce global GDP by 0.5% in 2020. This amounts to a loss of about US$455bn.

RIPPLE EFFECTS

The effects of the trade war were most evident in China, where syndicated lending in the first half of 2019 plunged 26% to US$35.44bn, compared with US$48.41bn a year earlier. Neighbouring Hong Kong also suffered a 20% decline to US$55.84bn this year against US$69.72bn raised in the first six months of 2018.

However, the two geographies produced significant activity from the real estate sector, particularly from financial sponsors borrowing to buy assets.

“Real estate financing is one of the areas where deal flow has been encouraging during the first half of this year, especially from financial sponsors and asset managers who have been very active acquiring assets,” said Amit Lakhwani, head of loan syndicate & distribution, Asia Pacific, at Standard Chartered.

“The sector is less reliant on exports or impacted by tariffs and therefore has been somewhat insulated from the negative sentiment arising from concerns on the trade war.”

In May, a consortium comprising private equity giant Blackstone Group, Hong Kong-based real estate fund Gaw Capital Partners and Goldman Sachs closed a HK$9.2bn (US$1.17bn) five-year loan backing the leveraged buyout of a dozen shopping malls from Hong Kong-listed Link Real Estate Investment Trust. It followed a Gaw Capital-led consortium’s HK$13.8bn LBO loan in March to back a winning bid for commercial properties of Link REIT in Hong Kong.

Gaw Capital and Chinese PE firm Hengli Group also raised HK$9.9bn through senior and mezzanine loans for their acquisition of office towers Cityplaza Three and Four in Hong Kong’s Taikoo district.

Australia and Singapore were among the other major markets to post a significant drop in loan volumes. Australia’s tally of US$36.56bn in the first half of 2019 represented a 31.43% decline from US$53.31bn in the corresponding period last year. Singapore clocked US$14.26bn in the first six months this year, plummeting 51% from the US$29.14bn raised a year earlier.

Despite the drop in volumes, Australia and Hong Kong proved fertile ground for leveraged financings. Hong Kong topped the M&A loans tally with volume of US$8.44bn, while Australia clocked US$7bn in the first half of 2019. Together the two markets accounted for nearly 70% of the US$22.23bn in M&A loans raised in Asia Pacific (ex-Japan) this year.

Australia generated a few LBO loans that provided opportunities across domestic and international markets. These included a A$2.15bn (US$1.52bn) senior loan supporting the buyout of Australian hospital operator Healthscope, a A$660m six-year unitranche loan backing US private equity firm TPG Capital’s leveraged buyout of Australian pet-store owner Greencross and UK forecourt operator EG Group’s A$400m term loan B that partially funded its acquisition of the petrol business of Australian supermarket chain Woolworths, among others.

“It is positive to see strong investor demand for different loan structures and across a variety of sectors,” said Andrew Ashman, head of loan syndicate for Asia Pacific at Barclays.

“This year, we have seen a broadening of the institutional investor base with new lenders from Australia, Singapore and Hong Kong joining Aussie dollar TLB loans for the first time to gain exposure to Australian credit.”

Elsewhere, Vietnam stood out across Asia Pacific (ex-Japan) with a nearly four-fold increase in lending to US$5.41bn in the first six months of 2019, compared with US$1.11bn in the same period a year earlier.

The pipeline in South-East Asia shows promise, particularly with a jumbo S$8bn (US$5.86bn) new money loan and amendment-and-extension exercise of existing debt for Singapore integrated resort Marina Bay Sands, which is expected to close in the third quarter.

Reporting By Prakash Chakravarti; Editing by Steve Garton

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