December 31, 2019 / 8:09 AM / 6 months ago

Asia Pacific lending reverses to two-year low

HONG KONG, Dec 31 (LPC) - Syndicated lending in Asia Pacific, excluding Japan, marginally declined to US$464.24bn in 2019 after briefly flirting with growth a year earlier as the global economy stuttered from the protracted trade tensions between China and the United States.

Loan volumes in 2019 dropped 4.2% from the US$484.82bn raised in 2018, despite a 10.3% increase in dealflow to 1,327 transactions compared with 1,203 loans completed in the year earlier. The decline marked a reversal from a stellar year in 2018 when Asia Pacific syndicated loan volumes grew for the first time in four years.

With the interest-rate environment continuing to remain benign, borrowers from Asia (ex-Japan) were more focused on locking in long-term fixed-rate funding as a result of which G3 currency bond issuance from the region surged to a two-year high of US$395.5bn in 2019, according to Refinitiv data.

“There has been volume leakage from the loan to bond markets in 2019,” said Ashish Sharma, head of loan syndications, Asia Pacific at HSBC. “Bond markets have seen strong issuance, and it’s not just the volumes, but borrowers have got access to more diversified structures, tenors and currencies in Asia.”

Hong Kong, despite taking a hit to economic activity in 2019 from anti-government protests that have been raging for over six months, surpassed other markets in Asia Pacific (ex-Japan) with robust lending activity. The territory sky-rocketed 24.3% to a record US$137.48bn in 2019 from US$110.6bn a year earlier, accounting for a 30% share of loan volumes from Asia Pacific (ex-Japan).


Hong Kong’s record tally was largely due to jumbo loans and strong event-driven financings as the city propelled M&A lending in Asia Pacific (ex-Japan) to a 20.8% year-on-year rise to US$42.59bn. Hong Kong accounted for US$15.11bn, or 35% of the total, with Australia, China and Indonesia the only other markets in the region to post growth in M&A loans.

A HK$25.2bn (US$3.23bn) loan in January backing the privatisation of Hopewell Holdings and a €4.56bn (US$5bn) takeout financing in October relating to the reorganisation of Hong Kong-listed CK Hutchison Holdings' European, Hong Kong and Macau telecom operations were among the noteworthy transactions in Hong Kong in 2019.

That tally would have sky-rocketed further had a multi-billion dollar acquisition loan of around US$15bn for Hong Kong Exchanges and Clearing materialised. Unfortunately, HKEx scrapped its £31.6bn (US$39bn) takeover bid for the London Stock Exchange Group in October after the latter rejected the offer.

Australia also produced robust M&A dealflow, including a US$2.25bn seven-year term loan B for IFM Investors’ acquisition of US pipeline operator Buckeye Partners and private equity giant KKR’s US$865m-equivalent seven-year TLB for its buyout of Campbell Soup's snacks unit Arnott's.


Notwithstanding the flow of event-driven financings, Australia’s overall loan volumes still tumbled 20.5% to US$75.95bn in 2019 versus US$95.53bn last year.

Elsewhere in Asia, Singapore suffered a 11.7% year-on-year decline to US$45.62bn in 2019 despite completing a mammoth S$8bn (US$5.86bn) financing for casino operator Marina Bay Sands in August.

Loan volumes in China also fell 16% to US$93.5bn year-on-year, due to muted dealflow and a slowing domestic economy. The Asian Development Bank has cut its growth estimates for China for 2019 and 2020 to 6.1% and 5.8%, respectively, from the 6.2% and 6% announced in September.

Similarly, India and Indonesia underperformed, slumping 24.5% and 11.6% respectively year-on-year to US$18.2bn and US$12bn.

Meanwhile, Vietnam and the Philippines were among the handful of markets registering significant growth in 2019. Both countries have been steadily increasing loan volumes in the past few years and in 2019 doubled their tallies year-on-year to US$7.71bn and US$5.62bn respectively.

“Asean doesn’t see a lot of pain as a result of the ongoing trade war tensions because the region has been supported by trade diversion, rising foreign direct investment and tourism,” said Aditya Agarwal, head of loan syndicate and sales at Maybank. “Vietnam continues to be a smaller but growing market. First-time issuers and even private sector are looking at the offshore loans market.”

Alternative sources of liquidity such as the growing institutional investor market in Australia and the Samurai loan market in Japan provided borrowers with more funding options leading to debut loans, longer tenors and pricing compression. High-grade credits, in particular, exploited these dynamics well, squeezing relationship banks for tightly-priced borrowings.

“We will continue to see longer tenor transactions with the main driver for this from investors given the potentially better returns and how low pricing is at the shorter end,” said Gavin Chappell, head of syndications, Australia at ANZ.”

“Market liquidity remains very strong and the appetite is certainly there to do deals – it’s just the function of where pricing is. I believe that we have hit the floor for now in terms of pricing,” Chappell added.


Activity for 2020, particularly financial sponsor and M&A-related lending, is expected to remain strong.

“In 2020, we expect the level of LBO activity to increase as private equity clients remain hungry to deploy capital and the fundamentals are strong,” said James Horsburgh, head of leveraged and acquisition finance, Asia Pacific at HSBC. “We are also helping Chinese clients acquire within Asia and Europe, and the take-private scene is coming back into focus.”

This is especially true for North Asia, where M&A lending has seen a revival recently. State Grid Corp of China is eyeing a loan of over US$2bn for its proposed acquisition of New York-listed Sempra Energy's businesses in Chile, while Jiangxi Copper is raising up to US$700m in debt for its purchase of a stake in Canadian copper producer First Quantum Minerals. Fujian-based Zijin Mining is seeking a loan of about US$600m to back its proposed acquisition of Toronto-listed gold mining company Continental Gold. ( Reporting by Chien Mi Wong; Additional reporting by Mariko Ishikawa; editing by Prakash Chakravarti)

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