Offshore spree by mainland firms helps to increase lending in Asia

From cereal firms to metal markets, offshore spree by mainland companies drives 56pc rise

PUBLISHED : Thursday, 13 September, 2012, 12:00am
UPDATED : Thursday, 13 September, 2012, 11:48am

Chinese companies swooping on assets in Europe and the US, from metal markets to cereal companies, are driving a 56 per cent increase this year in acquisition-related lending in Asia.

Some US$2.8 billion of loans used to fund purchases of corporate stakes have been signed since December 31, up from US$1.8 billion the same period last year, as overall syndicated deals in the Asia-Pacific region slumped. While the number of loans dropped to 109 from 120, the average size of transactions rose 66 per cent.

Hong Kong Exchanges and Clearing's US$2.2 billion buyout of the London Metal Exchange and Bright Food Group's US$1.15 billion purchase of a majority stake in Weetabix are some of the biggest loan-backed acquisitions in Asia this year. Corporates in the world's second-biggest economy are expanding abroad as they seek to create global companies and shift the nation's economy beyond export-processing industries as growth slows to a three-year low.

"We're seeing more large-sized corporate acquisitions driving the loan market," said Mohamed Atmani, the Hong Kong-based head of Asia ex-Japan acquisition and leveraged finance at UBS. "There's a lot of activity emanating out of China as corporates seek to take advantage of attractive valuations and buy companies abroad to secure access to natural resources and acquire technology and brands."

China outbound acquisitions total US$78.1 billion this year against US$72.4 billion in the same period last year and US$60.8 billion in 2010, according to data compiled by Bloomberg.

Syndicated lending is growing at the slowest pace in seven years as companies face rising borrowing costs and opt for more private, so-called bilateral facilities and bonds. About US$33.3 billion of loans have been signed since July 1, down 65 per cent from the same period last year and the slowest start to a second-half since 2005, the data shows.

Although Chinese banks are funding significant portions of the acquisition-related activity, international lenders are also competing to finance the deals. Policy banks have in some cases provided at least 50 per cent of the leveraged financing, with the remainder split among a group of foreign banks.

"I'm fairly optimistic we'll see strong loan volumes out of China in the coming six to 12 months," said Atul Sodhi, the Hong Kong-based head of Asia-Pacific loan syndication at Credit Agricole. "Outbound mergers and acquisitions by Chinese companies are on the rise and in addition there's increased stimulus that's being provided by the government. That will also work to boost liquidity and hence loan volumes," said Sodhi, who is also chairman of the Asia-Pacific Loan Market Association, which holds its China Loan Market Conference in Beijing today.