1H17 APAC (ex-Japan) Loans League Table Report: deal flow improves but volumes still down 7% YoY

13 July 2017

Asia Pacific (ex-Japan) 1H17 syndicated loan volumes reached USD 134.1bn from 290 deals, down 7% YoY from USD 143.9bn from 289 deals completed in 1H16, Debtwire data shows.

 

However, the data – which focuses on G3 currencies, but excludes local-currency loans in NTD, IDR and CNY, among others* – also reveals a pickup in activity from the dismal first quarter, when volumes were down 30.5% YoY, as reported.

 

CLICK HERE for Debtwire’s 1H17 loans league table report.

 

2Q17 volumes got a boost from closed deals for Alibaba Group Holding (USD 5.15bn) and Ant Financial (USD 3.5bn). Overall, USD 78.2bn from 150 loans closed in 2Q17, up 40% from USD 55.8bn from 140 deals in 1Q17, and a 6.5% increase on 2Q16 volumes of USD 73.4bn, Debtwire data shows.

 

“The main factor is lagging economic growth, which means some borrowers aren’t making big capex decisions,” said Phil Lipton, HSBC’s head of loan syndications, Asia Pacific. “There’s also the lack of jumbo deals and the slowdown in outbound M&A from China, as well as the continuing disintermediation from the bond market.”

 

Ashish Sharma, Credit Suisse’s head of APAC loan syndication, also notes the impact of bond markets, but expects that area should see some rebalancing.

 

“The bond market witnessed robust issuance volumes in the first half of the year, and that adversely impacted loan volumes,” said Sharma. “However, the expectation is that rates will increase, so I would expect to see some shift in the competitiveness of bond markets versus loan markets.”

 

Increased Chinese regulatory oversight, aimed at controlling outbound currency and monitoring acquisitions, has also hurt loan market volumes, both through a reduction in outbound M&A volumes from China, as well as through difficulties getting SAFE approvals for parental guarantees on offshore loans, as reported.

 

Data from this news service shows APAC M&A volumes down 2.3% on 1Q17, with USD 134.8bn from 771 announced deals, the lowest quarterly total since 1Q14.

 

However, sources view the increase in 2Q17 activity as a positive.

 

“I’d say we’re at post-2008 lows for pricing, and because of a lack of supply, terms have relaxed,” says Lipton. “That makes loans a very attractive option for borrowers.”

 

Sharma and Aaron Chow, head of Asia-Pacific business department, ICBC (Asia), also see bright spots in market activity, which are not reflected by just looking at volume numbers.

 

“Chinese companies are still very keen to bid for overseas assets, and I’m not seeing a slowdown in that interest,” said Chow. “What’s changing is they’re teaming up with international or overseas partners instead of just going solo, a lesson learned from past experience, where governments have reacted sensitively to their presence on deals.”

 

Chow estimates that M&A counts for roughly 20%-30% of his daily discussions, but adds that Southeast Asia is also a strong focus for ICBC (Asia), particularly lending to energy projects in Indonesia and Vietnam, markets that lack a primary based power supply.

 

Energy deals topped the industry loan volume tables, taking USD 28.6bn through 48 deals, Debtwire data shows.

 

China, meanwhile, continues to be the main supplier of sizeable loans, with three of the four largest deals in 1H17 for Chinese borrowers: the aforementioned loans for Alibaba and Ant, and a USD 4.65bn loan for Tencent Holdings unit Tencent Asset Management, Debtwire data shows.

 

Bilateral boom

 

Due to the lack of supply, club loans have become more common, and bigger banks have become increasingly willing to provide bilaterals to borrowers in recent years, to maintain volume and flow, loan markets sources told Debtwire.

 

While bilaterals have always been a key part of the Asia market, borrowers are increasingly able to tighten terms and pricing by dealing with one bank in what is essentially a borrower’s market, the same sources note.

 

“Banks that have the ability have increased their appetite for bilaterals, due to the lack of syndicated deals in the market,” says Lipton. “The bigger issue with bilaterals is not for larger banks, which have the capacity and appetite, it’s really for smaller banks, who are more dependent on taking tickets in the syndicated loan market for revenue.”

 

The resulting push down on pricing from excess liquidity may have already reached bottom, at least for Indian oil-related credits: Indian Oil Corp’s USD 300m February syndication was priced with a margin of Libor+ 68bps and offered a sub-100bps all-in, but ultimately has attracted interest from only one lender, at the time of reporting. Lead bank Sumitomo Mitsui Banking Corp, which underwrote and signed the deal before bringing it to market in a syndication, could be left holding around 85% of the debt, said two sources familiar with the deal.

 

Leveraged and acquisition finance

 

“In terms of M&A, cross-border deals or deals for global companies are where we see most activity,” said Chow.

 

Current deals where sizeable loans could boost loan volumes in the second half include the potential buyout of Singapore-listed Global Logistic Properties, and the HKD 28bn (USD 3.59bn) leveraged buyout (LBO) of Hong Kong-listed shoe retailer Belle International by CDH International and Hillhouse Capital.

 

While leveraged finance volumes are down more than 50%, at USD 6.2bn from 14 deals in 1H17, compared to USD 13.9bn from 27 deals in 1H16, according to Debtwire data, sources also note that the leveraged buyout activity is increasing.

 

“Activity in the LBO market is higher, not necessarily in terms of volume, but the number of active processes has increased,” said Sharma.

 

Sharma and Chow both note Australia as an active market for auction processes, and a market where institutional interest is changing the financing landscape.

 

“Australia is an interesting market right now, particularly because we’re seeing more institutional interest in financing,” said Sharma. “Not just in mezzanine, but in senior LBO financings, and in real estate sector mezzanine too.”

 

Evidence of that interest surfaced with the region’s first unitranche-backed LBO during 2Q17, as Pacific Equity Partners and Carlyle Group acquired Australia’s iNova Pharmaceuticals from Valeant Pharmaceuticals International Inc for USD USD 930m in cash, as reported. The buyout is backed by an AUD 850m (USD 657m) unitranche facility, with Highbridge Capital providing the bulk of the financing, as reported.

 

Sources note that institutional players active in Australia include Apollo Global ManagementBain Capital CreditKKR Capital Markets, as well as BaringsBlackrockChallenger and Metrics Credit Partners.

 

Developments in Australia mean financial sponsors now have more financing options at their disposal, which in turn is putting competitive pressure on Australian banks to offer more leverage and potentially lower pricing on LBO loans, said one senior Australia-based banker.

 

“If we’re structuring an LBO, we now have options of looking at traditional commercial bank debt, US TLB markets, Aussie TLB markets, and now we’ve also got the unitranche option,” said the senior banker.

 

Goldman Sachs is currently marketing an Australian TLB to institutional buyers and banks for Bain Capital portfolio company Camp Australia. The AUD 415m five- and six-year first- and second-lien facility will be partly used to refinance a AUD 167.5m loan signed in May with commercial banks, which backed Bain’s acquisition of before- and after-school care provider Camp Australia, but also to finance its acquisition of Junior Adventures Groupas reported.

 

Initial margin guidance for the AUD 415m Aussie TLB is around BBSY+ 500bps, as reported. The AUD 167.5m LBO loan offered margins of BBSY+ 450bps for five-year amortising money, and BBSY+ 475bps for five-year bullet money, with top level front-end fees of around 275bps, as reported.

 

The Aussie TLB is being marketed with an OID of around 99, said two sources familiar with the matter.

 

*Includes USD, EUR, JPY, AUD, SGD, NZD, CAD and offshore CNY