September 3, 2019 / 5:10 AM / 3 months ago

Asia syndicated loan volume slides to 7-year low on market volatility

* APAC syndicated loans at $281 bln so far this year, down 20% yoy

* Drop adds to pressure on commercial banks

* APAC M&A deal values slide 35.2%

By Scott Murdoch

SYDNEY, Sept 3 (Reuters) - Syndicated loans in Asia Pacific have fallen in 2019 to their lowest level in seven years as dealmaking activity has been hit by global political uncertainty and volatile financial markets.

The drop in such loans adds to the pressure on commercial banks whose lending books already face competition from low bond yields as well as increases in their own funding costs from regulatory changes.

Banks in the region have lent a total of $281 billion so far this year via syndicated loans – where a handful of banks take the initial loan before other institutions join and widen the lending pool - according to data from Refinitiv.

That is down nearly 20% on the same period last year, when $348.3 billion worth of such loans were made, and is the lowest since the $227 billion loaned in 2012. These loans are typically used for large deals or projects where the funding needed is too great a risk for a single bank to take on.

“The latest lending data suggests businesses and investors are sitting on their hands rather than engaging in activity that needs debt financing,” said KPMG Australian chief economist Brendan Rynne.

“The likely reason for this is the high level of uncertainty the world is currently facing. The geopolitical ring of fire is hotter than it has been for some time,” Rynne said.

The value of announced M&A deals involving Asia Pacific companies reached $634.2 billion in the first eight months of the year, down 35.2% compared to the same period in 2018, and the lowest volume since 2014, according to Refinitiv.

Bank of China remained the most active bank in the region as it arranged $30.6 billion worth of new loans in the past eight months, but that amount was down from $50.1 billion by this point in 2018. HSBC was second, having been involved with $17.9 billion of loans, compared to $14.4 billion last year.

China’s Bank of Communications’ share also grew sharply to $15.8 billion in the past eight months from $2.6 billion in the same period of last year.

A $11.6 billion refinancing by CK Hutchison Holdings was the largest syndicated deal so far this year. The transaction, led by Citigroup and HSBC, was to refinance a bridging loan held by its Italian telecoms subsidiary Wind Tre.

“A range of factors have impacted loan volumes including subdued M&A activity, which is partially due to the increasing trade war rhetoric, curtailed offshore acquisition activity among Chinese firms and volatile investment markets,” said Mahendra Kumar, Deutsche Bank’s head of loan origination in Asia.

“With volatility in the bond markets, we expect borrowers to move back some of the flow transactions to the loan markets after a prolonged bull run in Asian high yield.” (Reporting by Scott Murdoch in Sydney; Editing by Jennifer Hughes and Muralikumar Anantharaman)

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