First-quarter 2016 Asia-Pacific loan volume fell 30.5% year-on-year—to US$49bn from 122 deals—in the absence of large financings that had boosted 1Q16 volumes, according to Debtwire’s 1Q17 APAC (ex-Japan) Loans League Table report.
Despite plummeting volumes, 1Q16 Asia Pacific loan volume was $70.5bn from 155 deals, senior loans syndicators at international banks overall remain optimistic on the year ahead and emphasized solid deal pipelines rather than a fall in the volume of outbound China M&A deals, which has been a focus of media reports.
“I think the numbers are not a true reflection of the current market,” said Phil Lipton, HSBC’s head of loan syndications, Asia Pacific.
“Obviously volumes are down, but there’s been an absence of jumbo deals in the first quarter, which can make a big difference in a relatively small market, and I think we’re seeing the effects of a slowdown in activity from around six months ago, which shows up in low volume numbers now."
Big ticket loans that closed in 1Q16 included the $5bn term loan for China Cinda Asset Management’s acquisition of Nanyang Commercial Bank, the AUD 5.9bn ($4.47bn) term loan backing the acquisition of TransGrid’s assets in Australia, and a $3.59bn-equivalent one-year bridge loan to fund Thai conglomerate TCC Group’s acquisition of a 58.6% stake in Big C Supercenter from French retailer Casino Guichard Perrachon, as reported.
By comparison the largest completed deal in 1Q17 is Tencent Holding’s $4.65bn five-year club loan, as reported. But an aggregate of $8bn in deals for Alibaba Group Holding and its online financial services subsidiary Ant Financial, combined with a potential $3.85bn loan to back Cheung Kong Infrastructure’s proposed $5.5bn-equivalent acquisition of Australia’s DUET Group, would make a substantial difference to overall volume.
“The pipeline is active and we are likely to see deals being closed in April and May, and when they do you’ll see the gap on 2016 volumes closing up,” said John Corrin, Global Head of Loan Syndications at ANZ. “It’s likely that over the next three quarters we’ll eliminate that gap, and I’m confident we’ll end the year ahead of 2016 volume numbers."
According to Debtwire data, there is as much as $35bn in pipeline deals around the region.
Loans banking sources were generally dismissive of the suggestion that a slowdown in outbound China M&A deals was a huge factor in lower volumes, despite a precipitous decline in announced deals in 1Q17.
Beijing signaled increased scrutiny on outbound M&A towards the end of 2016, including on deals over $10bn, and above $1bn in enterprise value if the target is outside the buyer’s “core” area of businesses.
Announced outbound China M&A deal volume for 1Q17 plunged 84.5% from the year earlier period, according to this news service's data. Volumes reached $12.7bn, from 83 deals, compared to $82bn from 96 announced deals in 1Q16, although the 1Q16 total includes ChemChina’s announced $43bn acquisition of Syngenta.
“I think this may be more a factor of the vagaries of M&A than a result of new regulations,” said a senior loans syndicator at a Chinese bank. “There is obviously a slowdown caused by the new regulations, but buyers you’re seeing going out into the market from China—they’re substantially supported by the Chinese government so a lot of the negative talk is overstated."
Sources noted a decent pipeline of M&A transactions round the region, in Hong Kong, Singapore and Australia.
“You also have to remember that M&A is not a huge factor in Asia loan volumes—typically it would be around 15% of total loan volume,” Corrin said.
Cause for optimism?
Loans sources also noted a substantial slowdown in onshore CNY financings as the Chinese government has clamped down on lending to avoid overheating in the economy, in particular in the property sector.
That onshore tightening could result in a pick-up in offshore loan volume through Chinese borrowers.
The China pipeline of loans in the market is currently at as much as $13bn, according to Debtwire data.
Australia, currently third in the country league tables with $6.9bn from 21 deals, has a pipeline of around $9bn in loans, the same data shows.
Infrastructure M&A deals and sizeable corporate deals in Australia offer bigger tickets for banks, although strong competition means pricing can be tight, the Chinese loans banker said.
“The economy is mature and legal protections are strong for foreign participants such as ourselves,” he said. “M&A opportunities are therefore attractive, but it’s competitive—we can easily have 20 banks circling a situation," he added.
It’s not all about China
With high liquidity and a low deal volume, banks have been chasing yield and see increasing opportunities in Asia’s emerging markets.
“It’s not all China. Lots of people don’t care about China because they play in other spaces,” said a second senior loans banker from a Chinese bank. “Where we’re seeing opportunity is in emerging markets, like Indonesia, Vietnam or even Malaysia. For the right deal, at the right price, demand can be almost overwhelming."
Trans Retail Indonesia recently completed a USD 575m secured five-year amortizing refinancing loan, with 24 banks joining the seven MLABs, as reported, despite other CT Corp companies receiving covenants waivers and restructuring debt in 2016, as reported.
The loan pays a margin of Libor+ 350bps and offered a top-level all-in of L+ 380bps, as reported.
“The pricing was right, over 3%, and despite the geography and recent history of the credit, lenders were scaled back by around 50%,” the second Chinese loans syndicator said.
But pricing and structure have to be right for lenders to overcome perceptions of risk, the same source said.
Novelis recently successfully refinanced a $1.8bn due-2022 US Term Loan B in Asia through a secured commercial bank financing, but the 10 MLABs were left holding around 70% of the facility, as reported.
The $1.8bn loan for Novelis, owned by Indian conglomerate Aditya Bhirla Group's Hindalco Industries Ltd, features a 5.5-year bullet maturity and a margin of L+ 185bps for an all-in of L+ 215bps, as reported.