Mergers, acquisitions to support Asian loan volume
Continued strong mergers and acquisitions could push lending to new highs this year in major markets including Hong Kong and Singapore, according to Thomson Reuters.John Corrin, global head of loan syndications with Australia and New Zealand Banking Group, said 2013 "may exceed 2011's record volumes".
Japan, Asia's largest loan market, borrowed more than the rest of Asia combined in 2012, offsetting a contraction in Asia-Pacific lending, Thomson Reuters data show. Volume in Japan and the rest of the Asia-Pacific region was supported by the highest levels of M&A financing since 2007, as Asian companies took advantage of the euro-zone crisis to snap up foreign companies.
Japanese companies borrowed US$324 billion (Bt9.9 trillion) last year, 13 per cent more than in 2011, supported by $30.6 billion of M&A financing. Top Japanese firms took advantage of cheap borrowing costs from liquid Japanese banks and an active 1-trillion yen (Bt355-billion) Japan Bank for International Cooperation programme to buy foreign companies, while utility companies borrowed to shore up their finances after Japan's earthquake.
Lending across Asia and the Pacific excluding Japan of $308 billion was 10 per cent lower than in 2011 as borrowers favoured cheaper bonds and bilateral loans, although Asia-Pacific companies raised $28.4 billion of M&A loans.
M&A in Japan and Asia-Pacific totalled $59 billion, which made up about 10 per cent of the market overall. Multibillion-dollar acquisition loans last year included a $5-billion deal for ING's Asian insurance assets and a $2.7-billion facility for Thai Beverage's acquisition of a stake in Fraser & Neave.
With many acquisition loans still in the pipeline to be syndicated this year, bankers expect high levels of M&A to continue.
"We are already seeing loans in the pipeline, including deals for privatisations and US delistings," said Benjamin Ng, Citigroup's managing director and head of the debt syndicate and acquisition finance group.
"Also, we have received inquiries on outbound acquisitions for corporations," he said.
The 10-per-cent drop in Asia-Pacific loans was due to a contraction early last year as deleveraging banks looked for higher loan pricing to cover higher funding costs. Only 1,024 loans were completed in 2012, down from 1,081 in 2011, as many companies opted to refinance with bonds.
"In the past, loans were always priced tighter than bonds because of relationships and cross-sell opportunities," Ng said.
"Loan pricing became higher than bonds after the crisis with rising funding costs and looming Basel III compliance."
Refinancing made up about half of total loans in Asia-Pacific last year at $152 billion. The figure would have been higher if several blue-chip companies had not opted to refinance in the bond market.
"The vast majority of volume is usually for refinancing or new money capital expenditure from corporations," said Phil Lipton, managing director and head of syndicated finance with HSBC.
"In 2012, however, borrowers were put off new investment by higher loan pricing at the beginning of the year amid uncertain market conditions."
Conditions in the Asia-Pacific region's loan market eased towards the end of last year as the euro crisis moved towards resolution. Asian companies are looking at refinancing and new money loans again as more attractive loan pricing and improved liquidity attract borrowers back to the loan market from the bond market.
Optimism around liquidity is being tempered with caution as the aftershocks from the financial crisis continue to reverberate around the reigion.
The economic slowdown is top of the list as regional lenders keep a wary eye on risk.
"The economic slowdown could cause a rise in non-performing loans and banks could be tighter on marginal credits," said Boey Yin Chong, managing director of syndicated finance with DBS Bank.
Asian banks are well capitalised and have access to liquidity but are more aware of market and credit volatility, he said. The Basel III capital accord that banks will start to implement this year could also increase capital costs and ultimately loan pricing.