November 9, 2018 / 9:34 AM / 7 days ago

Taiwan Inc in capex flurry

* Loans: Lenders eye better returns from local investment plans

By Evelynn Lin

HONG KONG, Nov 9 (LPC) - Top-tier Taiwanese companies are turning to the loan market to fund local capital expenditure plans in a move that could help the island’s export-driven economy ride out the uncertainty surrounding US-China trade tensions.

The return of borrowers with strong credit profiles after a long absence also gives domestic lenders more opportunities to boost returns than the plain-vanilla onshore loans usually on offer.

Winbond Electronics, the world’s No. 3 memory chip supplier by volume, is seeking a NT$35bn (US$1.14bn) new-money loan to back the construction of a factory in Kaohsiung in its first such investment in nearly 15 years.

Last month, Chiahui Power launched a NT$10.5bn 20-year project financing to back the expansion of its power plant in Chiayi. Chiahui Power, an indirect unit of Taiwanese conglomerate Far Eastern Group, is also returning to the loan market after more than a decade.

“These capex loans from top companies in Taiwan come at a time when the island’s economy is turning around,” said a loan banker at a Taipei-based Taiwanese bank. “We see them as opportunities to earn better returns as capex loans usually offer 50bp higher interest margin than plain-vanilla loans.”

Taiwan’s exports surged for an eighth consecutive month in October, rising 7.3% from a year earlier because of solid global demand for technology products.

Bankers expect capex lending to pick up in the next few quarters as the Taiwanese government is wooing local companies with operations in China to invest more back home in an attempt to reduce economic reliance on its giant neighbour, amid a lingering trade war between the US and China.

According to local media reports, top Taiwanese companies such as Quanta Computer and Pegatron are shifting some of their Chinese manufacturing operations back to Taiwan.

“We see many companies have indicated a willingness to move back to Taiwan in response not only to the new tariffs, but also to the rising labour and land costs in China. There will be enormous capex requirements such as expansion of plants from such Taiwanese firms in the near future,” said a second loan banker at a Taipei-based domestic bank. OFFSHORE WIND GUSTS The new capex lending opportunities will add to the slew of financings in the pipeline from Taiwan’s renewable energy sector, where the government has set an ambitious target of installing 5.5GW of offshore wind power capacity by 2025.

International project developers and investors have flocked to join locals in the build-out of offshore wind farms and position themselves in an important growth area that is expected to require multi-billion dollar financings.

“Taiwan presents the biggest offshore wind energy market in Asia due to a relatively stable regulatory regime, a supportive government, and openness to foreign investment. We see several jumbo offshore wind project financings coming in the next few quarters,” said the second senior loan banker.

Danish wind energy developer Orsted has sent out a request for proposals for a NT$25bn five-year loan to back offshore wind projects in Taiwan’s Changhua county.

German wind project developer Wpd will raise a PF of about NT$55bn to back the second phase of an offshore wind project in the Guanyin area next year. This is in addition to an 18-year PF for the first phase of an offshore wind project in Yunlin area.

The deal is likely to increase to NT$80bn from an initial NT$64.7bn size Wpd had eyed when it sent out an RFP in July.

In August, Formosa II OWF sent out a RFP for a NT$60bn PF to back its offshore wind project in the Miaoli area. Societe Generale is the coordinator of the deal. Taiwan’s Swancor Renewable Energy and Australia’s Macquarie Capital are joint owners of Formosa II.

It follows an NT$18.7bn 16-year project financing completed in June for Stage 2 of the 128MW Formosa I OWF, Taiwan’s first commercial-scale offshore wind project. BNP Paribas was the coordinator and financial adviser. Formosa I is a joint venture between Orsted (35%), Swancor Renewable (15%) and Macquarie Capital (50%).

The capex and project lending bonanza means Taiwan will have another solid year of loan volumes. It was one of two major loan markets in Asia to record significant growth in the first three quarters, soaring 47% to US$25.2bn from US$17.16bn a year earlier. Capex loans for Taiwanese companies this year totalled US$3.8bn, 40% higher than the US$2.7bn raised in 2017, according to LPC data. (Reporting By Evelynn Lin, editing by Prakash Chakravarti and Chris Mangham)

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