December 28, 2018 / 7:57 AM / 6 months ago

APAC lending grows for first time since 2014

Hong Kong, Dec 28 (LPC) - Syndicated lending in Asia Pacific, excluding Japan, grew for the first time in four years to US$484.82bn in 2018 and recorded the second-biggest annual tally since US$523bn in 2014, despite a muted year for event-driven financings amid increasing equity and bond market volatility.

Lending in Asia Pacific was 8.9% higher than US$445.31bn in 2017 after late surges in Australia, China and Singapore, as three of the region’s major loan markets showed significant growth despite the overhang of US interest rate rises for most of the year.

“Asian loan markets remained stable in 2018 despite volatility in global capital markets and a slowdown in overall M&A financing activity amidst a reduction in China cross-border M&A activity,” said Benjamin Ng, Citigroup’s head of debt syndicate, loans and acquisition finance in Asia.

The number of deals fell, however, to 1,203 in 2018, 3.37% lower than 1,245 loans a year earlier.

Strong volume from China came as a surprise due to a lack of event-driven financings after the government introduced moves to curb overseas purchases in late 2016. Gathering economic clouds also caused concern as China’s economy slowed and the impact of a trade war with the US was felt in the second half of the year.

Excluding Japan, China dominated Asia Pacific lending with US$111.26bn of loans in 2018, showing a 9.9% increase on US$101.28bn of deals in 2017. This was largely due to a jumbo Rmb160bn (US$23bn) 11-year project financing for Chinese state-owned semiconductor maker Fujian Jinhua Integrated Circuit, which was the biggest loan in Asia Pacific (ex-Japan) in 2018.

Within days of Fujian Jinhua signing the loan in late October, the US government withdrew its access to US suppliers amid allegations that the firm stole intellectual property from American semiconductor giant Micron Technology.

The move mirrored a Commerce Department move in April, which nearly put Chinese telecommunications equipment company ZTE Corp out of business as the trade war rhetoric escalated.

Political developments made lenders jittery about lending to Chinese exporters in the manufacturing and technology, media and telecom sectors, which were seen as most vulnerable to the effects of a trade war.

It also deepened the pall on outbound M&A from China, which started in the second half of 2016 after China’s government introduced measures to control capital outflows.

M&A lending from Asia Pacific fell to US$35.25bn in 2018, showing a heavy 36.8% decline from US$55.74bn in 2017. The decline in Chinese M&A was far steeper, falling 75% to US$4.63bn in 2018 from US$18.37bn a year earlier. REFINANCINGS, A&E FLURRY Asian companies took advantage of lending appetite among liquid banks in a lacklustre dealflow environment and pushed hard to complete refinancings and amend and extend existing deals on more favourable terms.

This was particularly true in Australia and Singapore. In Australia volume climbed to US$95.53bn, 16.8% higher than US$81.77bn in 2017 and Singapore saw US$51.66bn respectively in 2018, 27.8% up on US$40.42bn in 2017. Singapore’s rise in volume was the biggest annual increase among the major loan markets in Asia (ex-Japan), thanks largely to the refinancings and A&E exercises.

Hong Kong was also busy refinancing, amending and extending existing loans, but overall loan volume was 7.3% lower at US$107.87bn, as fewer Chinese companies tapped the market.

The largest refinancing from Asia (ex-Japan) was a US$5.5bn loan for state-owned China National Chemical Corp (ChemChina) in March, which refinanced part of a US$12.7bn acquisition financing that funded its acquisition of Swiss seeds and pesticides maker Syngenta in 2017.

Casino and resort operators in Macau and Singapore such as MGM Grand Paradise, Venetian Macau, Wynn Resorts (Macau) and Marina Bay Sands amended and extended around US$12bn of loans in 2018. SAMURAI APPEAL Japan – Asia’s largest loan market – saw a stellar rise earlier in the year as Japanese companies embarked on an overseas acquisition spree which slowed in the fourth quarter.

Loan volumes from Japan in 2018 totalled US$232.42bn, slightly higher by 1.5% than US$228.94bn in 2017.

Takeda Pharmaceutical set a new record for the largest loan from Asia after closing a mammoth US$30.85bn bridge facility in May for its £46bn (US$62bn) acquisition of London-listed rare-disease specialist Shire.

Other M&A loans from Japan included a giant ¥825bn (US$7.51bn) facility for a Bain Capital-led consortium’s buyout of Toshiba Corp’s memory chip unit in December and a ¥728bn one-year bridge loan in October for chipmaker Renesas Electronics Corp’s US$6.7bn acquisition of US chip-design firm Integrated Device Technology.

A flurry of overseas firms raised Samurai loans, which are denominated in yen and distributed in Japan and allow international borrowers to access low-cost funds from domestic banks seeking higher-yielding loans amid ultra-low interest rates in Japan.

Samurai loans hit a decade-high of US$5.135bn in 2018, compared with US$2.729bn completed in 2017, according to LPC data. LOOKING AHEAD Market participants remain optimistic about the outlook for 2019 despite mounting geopolitical developments, including the trade war, increasing protectionism and Brexit.

“Even with heightened global market volatility, the APAC syndicated loan market remained resilient into the tail end of 2018, with banks demonstrating solid appetite for reasonably priced and well-structured deals. We see this trend continuing into the beginning of 2019 and are already seeing strong reverse enquiry on some of the more immediate deals we will be launching in early 2019,” said Adnan Meraj, co-head Asia Pacific syndicated & leveraged finance at Bank of America Merrill Lynch. (Reporting By Prakash Chakravarti; editing by Tessa Walsh and Luis Morais)

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