M&a drives asia pacific loan volume to us$165bn

← Homepage

(Reuters Basis Point) - Excluding Japan, Asia Pacific syndicated loan volume rose to US$164.5bn in the first six months of 2013, up 15.5% from the same period last year, as several large M&A financings boosted lending activity. M&A lending of US$30.5bn made up 18.5% of Asia Pacific's total loan volume. M&A loans have already exceeded 2012's US$28.4bn, which puts 2013 on track to be the second-biggest year for M&A in a decade.2013 is likely to see record Asian M&A lending, with more large deals in the market including a US$4bn loan backing China pork producer Shuanghui International's acquisition of US firm Smithfield Foods and a bridge loan for China Mengniu Dairy's proposed HK$11.4bn (US$1.47bn) takeover of Yashili International Holdings. This year could near the record annual M&A loan volume of US$80bn set in 2007 supported by the then active leveraged buyout market in Australia. There were 22 M&A loans completed this first half, including the largest bridge loan in the past decade, which was raised by Thailand's TCC Group to buy Singapore's Fraser & Neave. The bridge was a jumbo S$9.3bn (US$7.3bn) deal lent by only two local Singaporean banks. Other notable M&A loans this year include a US$6bn loan backing China's CNOOC to acquire Canadian firm Nexen, a US$6bn bridge for Thailand's CP All to buy Siam Makro, and a US$1.85bn bridge for Malaysia's SapuraKencana to acquire Seadrill's oil rig business. Much of the M&A activity is from Chinese firms, which make up the majority of the region's M&A deals, as they expand their overseas foothold. Chinese borrowers were also very active in corporate financing. In Hong Kong, almost two-thirds of loan volume was for Chinese corporates tapping for offshore borrowings as they sought cheaper funding. That helped to boost North Asian loan volume to US$80.85bn in the first half from last year's US$58.8bn.

Southeast Asia, meanwhile, recorded US$43.4bn in loan volume, compared with US$24.7bn this time last year. Much of the volume was from the two major M&A transactions from Thailand, which is usually a relatively small market. Deals for Indonesia, which got its investment grade status in 2012, were mostly oversubscribed -- across various pricing ranges, deal sizes and industries. The country's borrowers have raised US$6bn this year, up from US$3.3bn at the same stage last year. In January, Indonesia's state-owned oil and gas company PT Pertamina (Persero) agreed a US$965m five-year term loan from 29 lenders, while last month, 33 banks joined a US$475m five-year financing for PT Profesional Telekomunikasi Indonesia (Protelindo)."I have never seen over 20 retail banks in Indonesian deals since the 1997 crisis," said Boey Yin Chong, DBS Bank's managing director for syndicated finance.

Boey said investors wanted to diversify and Indonesia's new investment grade status made it the perfect alternative investment channel. LOOKING AHEAD Market players expect a strong second half for both North Asia and Southeast Asia. Alibaba Group's US$8bn refinancing -- the largest refinancing this decade -- will boost the second half numbers when it closes shortly. Dealflow in the first half dropped to 480 from 504 as fewer borrowers refinanced. Refinancing volume was at US$45bn compared to US$52bn a year ago.

Although North Asia saw many top-tier corporates heading to the bond market for refinancing earlier this year, market players expect some to return to the loan market as loan pricing becomes more attractive. Market players expect borrowers to refinance early to take advantage of cheaper funding. Borrowing costs have fallen, driven by more stability in the euro zone and the lack of dealflow that led to banks competing more aggressively for deals."An incredible amount of competition from the domestic and offshore bond market, alongside a self-arranging trend, are all factors contributing to overall price compression," said Sean Sykes, Commonwealth Bank of Australia's head of loan markets for New South Wales and Queensland. Alibaba almost halved the margin on its latest deal to 225bp over Libor on a three-year tranche, compared with a blended 460bp margin on last year's US$3bn debut comprising a one-year and a three-year tranche. Despite the fall in yield, many deals were oversubscribed as banks looked to lock in loan assets. The US$750m acquisition loan for Indonesian firm PT Trans Retail attracted 39 lenders, and Hong Kong developer Sun Hung Kai Properties' HK$15.2bn loan was increased by three times from an original target of HK$5bn, after oversubscription. New regulatory policies in some markets could help stabilise pricing for some. China's State Administration of Foreign Exchange (SAFE) recently issued a regulation advising that all foreign banks follow a new foreign currency loan-to-deposit ratio (LDR). As a result, US$ loan pricing is expected to go up, market sources say.