Loan levels in resurgent Asia to hit 7-year high
Market heads for a return to pre-crisis norms on a base of low interest rates as deal volumes approach pre-1997 pace
Asian syndicated loan volumes excluding Japan are poised to hit a seven-year high by the end of the year in a borrowing recovery that returns the market to pre-crisis financial levels, according to a debt industry newsletter.
The growth has been fuelled by low interest rates while demand from Indian firms for offshore syndicated loans - the biggest growth factor in the international currency loan market this year - has begun to falter as swap rates rise.
'Almost US$87.2 billion in non-Japanese loans has been signed so far this year, well more than the full-year volumes for each of the past three years,' basis point noted in its third-quarter market survey.
'If more than US$23 billion is signed in the fourth quarter, this year's annual volume will surpass the $110.4 billion raised in 2000 ... the largest annual volume since almost $145 billion was signed in the heady days of 1997,' it said.
Indian demand for offshore loans rose 153 per cent compared with the same period last year, the report said. Growth was fuelled by cross currency-swap rates that until recently made it highly attractive to raise US dollar loans before switching proceeds into rupees.
However, higher swap costs meant demand for offshore loans slowed, according to bankers, and borrowers were instead turning to India's domestic capital market to raise rupee funds.
Taiwan borrowers also displayed a strong appetite with syndicated lending this year rising 124 per cent over last year. Demand stemmed from expensive Taiwan dollar capital expenditure deals, said basis point, chiefly from flat-panel display makers who raised substantial sums to upgrade their production facilities.
Third-fastest was the Australian market, where US$14 billion in syndicated loans was signed in the third quarter - though almost 50 per cent was for refinancing.
Hong Kong remained a relatively weak market with growth of 22 per cent.
'Only a handful of blue chips tapped the Hong Kong dollar loan market for refinancing, and red-chip deals dropped again, leaving only mid-cap companies to fill the breach,' basis point said.
The 'big story' for Hong Kong was the persistent downward pressure on pricing, taking the most tightly priced loans to below 1997 levels, it said.
'With fewer of these deals being refinanced and a shortage of new deals in other market segments, it has become a lot easier for lesser credits to bargain for tighter pricing, playing off banks' desperation for new business.
'As a result, the gap that used to exist between different tiers of corporates in Hong Kong has narrowed significantly over the past years, leading an unprecedented 'bunching' of corporate pricing.'
The spreads above US Treasuries at which syndicated loan deals were being done in Hong Kong had fallen below 50 basis points for previously lesser-rated credits.
In such cases, bankers could increasingly turn their eyes to the 'red prize', basis point said.
'[Mainland]-incorporated borrowers have raised almost US$4.2 billion in offshore loans; already well above the US$3.6 billion that [mainland] firms raised offshore in all of last year.
'Foreign-owned [mainland] borrowers are becoming an increasingly important part of this market, and ... this year they account for almost half of total borrowings by [mainland] companies.'
