Rlpc: Regulators slow Asia Pacific lending in third quarter

Sinostar Pec Holdings

30/09/2014 17:14

By Prakash Chakravarti 
    HONG KONG, Sept 30 (Reuters) - Excluding Japan, Asia Pacific 
loan volume of $336.7 billion was six percent higher in the 
first nine months of 2014 than the same period last year, but 
third quarter volume fell as the region's regulators took steps 
to curb lending to China. 
    Third quarter volume of $101.4 billion was lower than the 
previous two quarters as regulatory action slowed the market in 
a quieter summer, in contrast to good activity in the first six 
months of 2014. 
    "The Asia Pacific (loan) market in general is pretty strong 
this year, especially in North Asia where we see a lot of 
privatisation and event-driven deals," said Boey Yin Chong, 
managing director of syndicated finance at DBS Bank. 
    Slower dealflow saw increased competition by banks for fewer 
mandates and loan pricing tumbled across the region as banks 
were able to lend at lower rates thanks to lower funding costs. 
    "If I have to point to one thing about 2014, it will be the 
significant price compression we have seen across APAC, 
especially in key markets like China and India," said Aditya 
Agarwal, head of loans, Asia at Royal Bank of Scotland. 
    China, which was Asia's biggest loan market in 2013, was the 
biggest contributor to the third quarter slowdown, as regulators 
in Hong Kong, Singapore and Taiwan announced measures to curb 
their banking systems'growing exposure to China. 
    Regulators stepped in to limit banks' exposure to rising 
loan default rates for Chinese privately-owned companies. Some 
sectors are struggling as China's economy slows and the 
government has indicated that little support will be 
forthcoming. 
    Sinosteel Corp, China's biggest state-owned steel trader, 
was in the spotlight in September after announcing that it was 
facing financial difficulties due to unpaid bills from its 
customers. 
    Loans to smaller companies such as shoemaker China 
Ultrasonic Outdoorwear Holdings Co Ltd have also been in focus 
after corporate governance issues spooked the market. 
 ID:nL3N0RN1B5    
     
CHINA DOMINATES 
    China maintained its position as Asia's biggest loan market 
with volume of $76 billion in the first nine months. Third 
quarter volume of $26.6 billion was 21 percent lower than a year 
earlier and eight percent lower than the second quarter of 2014. 
    China produced the largest Asia Pacific loan in the third 
quarter. In July, a syndicate of four Chinese banks signed two 
facilities totalling $6.957 billion to fund the $5.85 billion 
purchase of the Las Bambas copper mine in Peru by China's MMG 
Ltd from global mining firm Glencore Plc.  GLEN.L   
    Hong Kong's loan market also continued to benefit from its 
status as the offshore funding centre for Chinese companies, 
with volume of $64 billion in 2014 in the year to date, showing 
a 7.5 percent increase on $59 billion transacted in the same 
period of 2013. 
    "While volume is high, pricing for high grade Hong Kong 
names has been under significant pressure as liquidity continues 
to flow into Hong Kong's markets," Boey said. 
    Hong Kong lending was however 27 percent lower at $17.08 
billion in the third quarter compared to the second quarter.  
    Australia also saw a significant third quarter decline to 
$20 billion compared with $33 billion in the second quarter as 
borrowers stayed on the sidelines and M&A activity remained 
muted. 
    The fourth quarter of 2014 promises some more Australian M&A 
loans after a long-awaited pick up in activity in the US and 
Europe. Refinancings for supermarket giant Woolworths Ltd 
 WOW.AX  and Colonial First State Investments Ltd are expected 
to boost Australian fourth quarter volume.   
       
PRICING COMPRESSION 
    The third quarter slowdown in Asia Pacific has prompted more 
competitive behaviour by banks trying to win mandates, which has 
pushed pricing down across the region, aided by a drop in banks' 
funding costs.  
    India and Indonesia's economies have also bounced back from 
high levels of macroeconomic volatility seen last year. Banks' 
appetite to lend is recovering but falling loan pricing is 
hitting banks' bottom line.    
    "The pipeline is good, but everyone is looking at tighter 
pricing. The challenge for loan arrangers is to transact more 
profitable loans, which is difficult now," said John Corrin, 
global head of loans at ANZ. 
    Taiwanese banks, traditionally Asia's biggest lenders, are 
facing tough curbs on Chinese exposure from their regulator and 
are now looking to participate in deals from other parts of the 
region, especially India and Indonesia. 
    "From an overall perspective, we continue to see China, 
India and Indonesia as key US dollar loan markets in APAC in 
2015," said Aditya Agarwal.  
    Frequent state-owned oil and gas borrowers from India 
including Indian Oil Corp  IOC.NS , Hindustan Petroleum Corp Ltd 
 HPCL.NS  and Indonesia's PT Pertamina, among others, have been 
able to refinance existing loans at lower rates. 
 
 
 (Editing by Tessa Walsh) 
 ((tessa.walsh@thomsonreuters.com; +44 207 542 4048; Reuters 
Messaging: tessa.walsh.thomsonreuters.com@reuters.net)) 
 
Keywords: LOANS ASIAPAC