Central Banks

Banking on the group

Syndicated lending is set to make a comeback in Asia's debt capital markets as bond-buying by central banks cuts interest rates for lenders

PUBLISHED : Friday, 01 February, 2013, 12:00am
UPDATED : Friday, 01 February, 2013, 5:22am


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Narrowing interest margins will spur demand for syndicated lending in Asia this year and reduce bonds' biggest share of debt capital markets in three years.

The proportion of loans to total debt arranged in the Asia-Pacific region outside Japan shrank to 66 per cent last year, the least since 2009, according to data compiled by Bloomberg.

Corporate bond sales surged 78 per cent to a record US$199.2 billion in 2012, while syndicated bank debt volumes slid 18 per cent to US$378.5 billion.

Rates at which lenders raise capital are falling as bond-buying by central banks to stimulate the world economy boosts the supply of US dollars in the financial system.

That has translated into cheaper loans for companies, with average interest margins for loans denominated in dollars signed this year falling to 319 basis points above the London interbank offered rate, from 358 basis points in the last six months of 2012.

"There's been a huge decrease in bank funding costs over the second half and I think that will result in a 10-15 per cent drop in average in loan pricing across Asia in 2013," said Boey Yin Chong, the Singapore-based managing director of syndicated finance at DBS Bank.

"That stability in funding costs will help support Asia syndicated loan volumes this year, although bonds will still provide some competition," he added.

Syndicated bank debt volumes fell from US$460.3 billion in 2011, when the facilities represented 80 per cent of total bond sales and loans. The proportion was 75 per cent in 2010, with US$370.2 billion of signed agreements.

"Bond markets have had a fantastic run in the last few months thanks to great market and liquidity conditions," said Atul Sodhi, the Hong Kong-based head of global loan syndication at Credit Agricole. "In the recent weeks we have seen a strong improvement in liquidity and market conditions in the loan market, and as the year progresses, my feeling is the balance will shift back towards loans."

Bond sales surged as the cost of borrowing in the US currency plunged to record lows. Average yields on dollar notes in Asia fell to 3.77 per cent by mid-January, the least in data going back to 1996, according to Bank of America Merrill Lynch's Asian Dollar Corporate Index.

About US$8.4 billion of loan facilities have been signed since December 31, data compiled by Bloomberg show.

Noble Group, Asia's biggest publicly listed commodity trader, earlier this month approached its relationship banks for a US$2 billion two-part loan and expected to price the facility at a lower rate than its US$2.36 billion borrowing, which closed in 2012, a person familiar with the matter said.

Citic Telecom International is raising US$1.25 billion via a two-part financing from about eight banks for its proposed 79 per cent stake purchase of Companhia de Telecomunicacoes de Macau from Cable & Wireless Communications and Portugal Telecom.

"Pricing levels are fantastic," said Sodhi, who is also the chairman of the Asia Pacific Loan Market Association, before the organisation's annual global summit in Hong Kong yesterday.

"In addition to M&A financing, we'll see a number of regular corporate borrowers coming back in a big way."

Kingboard Chemical, which last took a syndicated loan in April 2011, was marketing a HK$4 billion facility and offering a margin of 215 basis points, a person familiar with the matter said.

"We're seeing a normalisation in capital markets and both liquidity and availability of long-term funding to financial institutions is progressively coming back to pre-crisis levels," said Didier LeBlanc, the head of loan syndication, and acquisition and leveraged finance for Asia-Pacific at BNP Paribas.

"Loan pricing may not continue to fall as fast if we see more new money transactions."

As banks' wholesale borrowing costs fall, the rate at which they can lend typically declines. The yield premium for bank bonds globally had fallen to 153 basis points as of Tuesday from 307 basis points 12 months ago, Bank of America Merrill Lynch's Global Banking index shows.

China would also "remain a very interesting market for banks in 2013, considering the government support for economic activity and the fact Chinese companies seem very keen on cross-border activity", Sodhi said.

Mergers and acquisitions by Chinese companies rose 7.6 per cent to US$85 billion in the second half of 2012 from the first six months of the year, Bloomberg-compiled data show.