June 30, 2020 / 9:50 AM / 14 days ago

APAC first-half lending tumbles to eight-year low

HONG KONG, June 30 (LPC) - Syndicated lending in Asia Pacific, excluding Japan, plunged to its lowest level in eight years, as the global economy struggled to recover from the shock of the coronavirus pandemic.

Loan volumes in the first half of 2020 tumbled nearly 17% to US$195.74bn from US$235.58bn in the same period a year ago with the number of deals dropping to 589 compared with 726 in the first six months of 2019.

Lending in the second quarter this year held up well at US$101.19bn, compared with US$94.19bn raised in the preceding quarter and considering the onset of the Covid-19 disease that led to restrictions on travel and curtailed economic activity globally.

“In the first quarter through to the beginning of the second quarter, most banks were focusing on preserving their capital to support existing clients, so there had been less interest to look at new transactions or new credits, unless for really attractive names,” said Benjamin Ng, co-head of debt capital markets for Asia at Citigroup in Hong Kong.

Debt repayment and refinancing continued to be the main driver of activity in the market, accounting for US$75.02bn, or 38.32% of the total loan volume in the first half of 2020.

Aviation was one sector to suffer the most from the pandemic as unprecedented lockdowns in many countries disrupted air travel leading to a significant drop in demand. Airlines around the region scrambled to put in place liquidity facilities to manage the disruption and loss of revenues with many relying on state support.

Australian flagship Qantas Airways was the only airline in Asia to brave market turbulence in the second quarter with a syndicated loan. In May, it closed an increased A$450m (US$299m) 10-year amortising loan that saw nine banks participating, including five in general syndication.

Most other airlines landed bilateral or club deals or emergency funding from their governments. Aircraft leasing companies deferred new purchases and hardly borrowed in the loan market. The loans tally for the first half of 2020 for aircraft leasing companies in Asia Pacific was a mere US$289.9m, compared with US$2.65bn in the same period a year ago.

The restrictions on travel have also impacted syndicated lending activity in other ways.

“Syndications are taking longer to close, partly driven by the work-from-home measures, but there is also increased scrutiny by target lenders,” said Andrew Ashman, head of APAC loan syndicate at Barclays in Singapore. “Banks are taking their time to do their due diligence, particularly for new relationships, so it is taking longer to get things done.”


Event-driven financings also took a significant hit, with the volume in the first six months of 2020 plummeting 25.82% to US$16.84bn from US$22.7bn, and the number of deals nearly halving to 24 from 46.

The gap in valuation expectations between buyers and sellers widened as a result of the market volatility, and, combined with the constraints on carrying out site visits and due diligence, raised the hurdles higher for M&A dealflow. Major M&A lending markets such as Hong Kong and Taiwan suffered significant year-on-year declines as a result, with Hong Kong tumbling 75.12% to US$2.40bn.

Event-driven loans from China skyrocketed 171.26% year-on-year to US$3.74bn, thanks to a Rmb20bn (US$2.83bn) loan in February for Hillhouse-backed Zhuhai Mingjun’s acquisition of a 15% stake in Shenzhen-listed Gree Electric Appliances Inc of Zhuhai, a deal which was first announced in October 2019.

Notwithstanding the rise this year, M&A from China has been declining over the years and geo-political factors such as a rising anti-China sentiment and its long-drawn trade war with the United States are likely to add to the challenges in dealmaking.

Australia was a standout, bucking the regional trend with US$5.46bn in event-driven loans in the first half of 2020. The bulk of this volume was thanks largely to the jumbo A$5.25bn financing supporting the merger of Vodafone Hutchison Australia and TPG Telecom.

Leveraged financings mainly in the form of Term loan B deals continued to build in Australia with a US$327m-equivalent add-on backing infrastructure services company Ventia’s acquisition of Broadspectrum closing successfully in June. The deal was the first TLB to be launched and closed in the region after the Covid-19 outbreak.

Despite the decline in activity, bankers are optimistic of a pick-up in M&A dealflow.

“I would expect well-capitalised and liquid corporates as well as private equity sponsors to be very well-placed to take advantage of further acquisition opportunities that will no doubt present themselves in the coming year,” said James Poulos, head of loan markets and syndications for Australia and New Zealand at MUFG.


Asia is better poised than the rest of the world to recover from the impact of the Covid-19 in the coming months, according to market participants.

Ratings agency Fitch said in a June 9 report that it expected economic momentum in Asia Pacific to turn positive in the second half of the year as domestic lockdowns are eased and external demand gradually improves, limiting the drop in regional economic output to 1.7% in full-year 2020.

The report also said the region as a whole is set to outperform the global economy. Loan bankers are also looking forward to a building pipeline and reduced pressure on liquidity and cost of funding.

“Foreign banks have been more supportive this time around than they were during the 2008 global financial crisis when there was a greater retreat back to their home markets,” said Gavin Chappell, head of syndications Australia at ANZ.

He cautioned however that a recovery could be potentially delayed because of capital positions for banks should there be a broader global economic fallout and corporate downgrades and defaults over the next six to 12 months.

Reporting By Apple Li; additional reporting by Mariko Ishikawa in Sydney; editing by Prakash Chakravarti

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