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SCMP Reporter

The mortgage loan war between the territory's banks has widened, with lenders desperately outbidding each other in the syndicated-loans market in the quest for business.

What started as a battle between mortgage lenders has spilled over into the lending market for local corporations, with rates falling sharply and banks' profit margins coming under pressure.

'The trend is clear. Banks are competing fiercely for the deals,' a banker said.

While the lower rates are biting into the banks' bottom lines, companies have never had it so good.

They are able to borrow more cheaply than anticipated, bolstering profits as interest payments come down.

Bankers have reported what they termed 'amazing deals' in the syndicated-loan market. For example, the five-year syndicated loan of Cheung Kong (Holdings) was earlier this year priced at 77.5 basis points above the London interbank offered rate (Libor). The same deal last year was priced at about 87.5 basis points.

Similarly, Sun Hung Kai Properties' five-year deal last year was priced at 95 basis points above Libor. The margin was lowered to 75 basis points this year.

Sources said the situation would become increasingly tense, as lenders lined up to finance Hutchison Whampoa's recent $7.78 billion fund-raising, the largest ever in the territory.

They said the deal would push eager bankers to a new low margin in corporate fund-raising.

'It is going to be a very serious test of how far the banks are prepared to be pushed,' a banker with an American bank said.

Lenders argued the outcome of the seven-year deal, arranged by Chase Manhattan Asia and HSBC Investment Bank, would set the benchmark for subsequent deals.

  One banker said: 'If there is a seat for Hutchison when the music stops, the game continues. If not, banks should step back and do a reality check.' All-in fees for Hutchison's landmark deal are 75.7 basis points above Libor to senior lead managers and underwriters, compared with the 86 basis points Hutchison gave in September last year on its five-year $5 billion dual currency revolving credit.

Bankers attributed the intense competition to the drop in lending opportunities and an increase in the number of aggressive participants. Late-comers, particularly European banks, were using their huge balance sheets and relatively small exposure to certain industries and companies to beat the market.

'Some are staking their claims and doing some flag-raising exercises,' a banker said, citing Societe Generale and Credit Suisse. Dutch bank ABN Amro also has been in the lending spotlight.

  Some bankers argued Hong Kong was simply moving into a more sophisticated financing mode as corporates were equipped with investment-grade credit ratings and were getting funds of longer maturity.

'We are repricing the corporates in accordance to their credit-worthiness,' one European banker said.

However, those bankers who are feeling the pinch do not agree.

 'If Hutchison can pull this deal off, we ought to be looking for a new job,' one said.



Housing loans war spreads to capital market