Loan margins remain under pressure

PUBLISHED : Tuesday, 12 July, 2005, 12:00am
UPDATED : Tuesday, 12 July, 2005, 12:00am

Volume of syndicated lending rises 55pc in the first half but pricing falls considerably over the same period

Margins in the local syndicated loan market are expected to remain tight in the second half of this year as European banks continue to divert excess liquidity to Asia, observers said yesterday.

Lending spreads were already narrow in the first half. According to debt publication basis point, the volume of syndicated lending in Hong Kong rose 55 per cent year-on-year between January and June, to more than US$10 billion.

Pricing, however, fell considerably during the same period.

For example, Cheung Kong (Holdings) closed a $4 billion, five-year self-arranged revolving credit facility with an all-in cost of 30 basis points, compared with the all-in 32 basis points it paid for a $5.8 billion deal it arranged six months earlier.

'There is still room for pricing to tighten further, both for blue chips and for top-tier [mainland] companies,' said Kevin Tham, head of loan syndication at ABN Amro.

One reason lending prices are falling is an abundance of lending capital emerging from Europe, according to Mr Tham.

'Surplus capital is still supporting European bank liquidity, especially in France, and there is a need for them to diversify and deploy capital by building asset books, not just in Europe but in Asia as well,' he said.

Boosted by acquisition lending and refinancing, the value of syndicated loans in the Asia-Pacific market, ex-Japan, totalled US$62.1 billion in the first half of this year, compared with US$52.9 billion during the same period last year, basis point said.

A local banker said the demand for funding in the city had not been as strong as reported because some of the deals were done for refinancing purposes rather than being freshly-raised capital.

'The business environment remains challenging and the banks do not have much bargaining power,' the banker said.

Bankers also expect the squeeze to pass on to mid-sized companies, despite the recent collapse of Moulin Global Eyecare Holdings.

Mr Tham said Moulin's situation was beyond the control of the bankers. 'There are many well-run mid-cap companies with strong growth potential and there is room for pricing to tighten further,' he said.

Moulin was recently placed into liquidation, followed by the arrest of company officials including its chairman, Ma Bo-kee and chief executive, Cary Ma Lit-kin, in relation to a $1.6 billion fraud probe.

Basis point expects a 'robust' second half for China's syndicated loan market, buoyed by a US$1.1 billion five-year loan for Sinopec Group.

Bank of America Securities, Bank of China (Hong Kong) and ING Bank are in 'advanced negotiations' over the Sinopec deal, the publication said, while Calyon Corporate and Investment Bank, Citigroup and Standard Chartered Bank (Hong Kong) are also involved. Pricing in the negotiations is moving towards the mid-30s, compared with 37 basis points reported earlier, and the loan could be finalised as soon as this week.