HONG KONG, Sept 30 (LPC) - Syndicated lending in Asia Pacific, excluding Japan, fell by 8.7% to US$334.38bn from 925 deals in the first nine months of 2016 compared to a year earlier, dragging volume to a three-year low amid wider market volatility, slow economic growth and limited M&A activity.
Third quarter lending of US$93.63bn was 24.66% lower than US$124.28bn in the same period last year and only 225 deals were completed, the lowest quarterly tally for six years since the first quarter of 2010 when 182 deals closed.
Activity fell in every major Asian loan market except Hong Kong and India as economic activity slowed, putting banks under pressure to generate returns with fewer opportunities to lend.
“Loan volumes this year in Asia are lower for a number of reasons. Among the biggest is the lack of event-driven financings. Companies in Asia continue to preserve capital and are not engaging in much expansion or mergers and acquisitions,” said Wayne Green, BNP Paribas’ head of loan syndicate & sales APAC.
The second half of 2016 has been less turbulent than last year, when China’s surprise devaluation of the renminbi unleashed turmoil on global financial markets, the global economy is facing uncertainty including the US Federal Reserve’s interest rate moves, the implementation of Japan’s negative interest rate policy and Britain’s vote to leave the European Union.
China’s economic slowdown is the biggest single factor depressing Asian lending. Chinese lending fell to US$21.52bn in the third quarter, bringing China’s total for the first nine months to US$107.30bn, 11% lower than US$120.89bn a year earlier.
Despite the fall in volume, the PRC is still Asia’s largest loan market (excluding Japan), and accounts for 32% of regional activity so far this year.
Australia, Singapore and Taiwan are also slowing with year-to-date totals of US$40.65bn, US$23.55bn and US$24.70bn respectively, showing drops of 28.9%, 18.2% and 34.5% compared with the first three quarters in 2015.
Neighbouring Hong Kong bucked the trend due to continued offshore borrowing for China Inc with a 27.6% increase to US$80.44bn in the first nine months compared to the same time last year, 63% of which was for Chinese borrowers.
India also achieved positive growth this year with a 14.70% increase to US$16.10bn in the first three quarters, up from US$14.02bn in the same period of 2015. CHEMCHINA M&A BOOST Hong Kong’s tally was boosted by the US$12.7bn bridge loan backing state-owned China National Chemical Corp’s SFr43bn (US$43.45bn) acquisition of Swiss seeds and pesticides company Syngenta AG.
The acquisition is China’s largest overseas purchase and the recourse bridge for ChemChina is the largest loan from Asia (excluding Japan).
ChemChina’s loan accounted for 25.23% of US$50.33bn in M&A financing from Asia (ex-Japan) raised so far this year, which has already exceeded 2015 M&A lending for the region of US$47.86bn.
ChemChina’s deal also made up for the loss of a jumbo financing of more than A$10bn (US$7.69bn) backing the privatisation of electricity distributor AusGrid, which is expected to proceed next year.
“The deal is now seen as a 2017 transaction and, as a result, banks that had budgeted for potential income from the deal will now have to look at alternative sources,” Green said.
Australian event-driven financing has picked up in recent weeks, with term loan B deals for infrastructure services provider Ventia and US data management firm Iron Mountain Inc and an A$4bn loan supporting Port of Melbourne’s privatisation has already attracted 17 lenders, showing banks’ hunger for quality assets.
Fourth quarter volume will receive a boost with the closing of big ticket deals including a US$7.2bn bridge loan backing Malaysian oil and gas giant Petroliam Nasional’s construction of its Refinery and Petrochemical Integrated Development project and a US$3.5bn non-recourse loan to finance Chinese internet company Tencent Holdings’ acquisition of a majority stake in Finnish mobile game developer Supercell.
Fewer loans this year have also led to oversubscriptions on sovereign deals from frontier markets including Vietnam and Sri Lanka.
In September the Government of Sri Lanka closed its largest syndicated loan, which was increased to US$700m, and Vingroup Joint Stock Co, Vietnam’s largest private-sector real estate developer, increased a five-year loan to US$300m.
“The ease with which big-ticket deals have closed this year is remarkable,” said Ashish Sharma, managing director and head of loan syndication Asia Pacific at Credit Suisse.
“In the past three months, activity levels, particularly in event-driven financings, have picked up with new structures and geographies adding to the mix. Traditionally less active markets such as Vietnam and Sri Lanka have brought transactions to the market, giving lenders access to more diversified transactions.”
Limited dealflow and strong bank liquidity is helping top-tier borrowers to achieve tighter pricing across the region as the loan market continues to face stiff competition from competitively-priced bond markets.
Malaysian oil and gas company Petronas is seeking all-in pricing of 80bp on a US$7.2bn 18-month loan, while Indian state-owned oil and gas companies such as ONGC Videsh, Bharat Petroleum Corp, Indian Oil and Oil India have achieved all-in pricing of between 61bp to 84bp on short-term bridge loans.
“Bond markets continue to pose strong competition to loan market activity as they remain open and have grown in volumes this year. As such, there has been volume leakage from loan markets to bonds,” said Sharma.
Reporting By Prakash Chakravarti; editing by Tessa Walsh