Bankers count on M&A, China to spur loan growth
hong kong/sydney — Loan bankers in Asia are relying on companies’ merger and acquisition activities and China’s ‘One Belt, One Road’ initiative to fuel loan growth next year after volumes in the region stagnated in 2016.
Asia-Pacific ex-Japan loan volume amounts to $451.5 billion year to date, just shy of the $452.3 billion syndicated and clubbed deals completed in 2015, due to slower deal flow as some companies have suspended investment plans amidst a global economic slowdown and political uncertainties brought on by elections in the US and Europe. The market was sustained by acquisition financing, which rose to $95.6 billion, more than double 2015’s $46.6 billion.
Bankers in the region expect Chinese companies to stay hungry for overseas assets, despite China’s recent plan to curb their outbound acquisitions, because the restrictions are temporary and affect only foreign acquisitions of a certain value that fall outside a buyer’s core business.
“Interventions on outbound M&As will come and go in China, based on internal imperatives,” said Aziz Dean, Sydney-based head of loan markets of Westpac Banking. “But overall, I think the demand will continue from Chinese companies to invest in good assets globally, especially in Asia.”
New Silk Road
China’s ‘One Belt, One Road’ initiative is seen as another source of new borrowing after a slow year for project financing. The government is encouraging companies to do business and invest in infrastructure along the ancient Silk Road trading route that stretches from Asia to Europe which Eurizon SLJ Capital estimates has an aggregate project size of $1.4 trillion.
“Infrastructure projects under the ‘One Belt, One Road’ initiatives, a couple of them with financing needs of over $10 billion, would drive loan volume,” said Eugene Lau, China Construction Bank (Asia) Corporation’s Hong Kong-based deputy general manager and syndication head.
Demand will continue from Chinese companies to invest in good assets globally, especially in Asia Aziz Dean, head of loan markets of Westpac Banking
Project finance volume this year is 17 per cent behind 2015’s fullyear $114 billion, dented by a more than 60 per cent decline in Australia and New Zealand volume. Deals in the pipeline include the Melbourne Metro Tunnel development of about A$6 billion ($4.34 billion) and a $7.2 billion financing backing Petronas’ refinery and petrochemical project in Malaysia.
Project finance and capital expenditure deals in India rose to $3.68 billion this year, while event-driven financing, which includes M&A loans, climbed to a five-year high of $3.53 billion, as India’s companies expand their global ambitions.
“We have seen a pick-up in M&A activities in the European and US markets and I’d expect that to flow through to the Asian markets,” said Andrew Ashman, head of loan syndicate Asia Pacific at Barclays Bank in Singapore. Global acquisition financing reached $919.1 billion so far in 2016, compared with 2015’s $1 trillion.
$451.5b worth of loans were taken out in 2016 in Asia Pacific ex-Japan region
Private equity buyouts
Aside from corporate M&As, activity in private equity leveraged buyouts may also support the market with term loan B products, which traditionally target institutional investors. The so-called TLBs, popular in the US and European leveraged finance markets, usually carry higher interest rates with only slight amortisation throughout the loan tenor and a large balloon payment scheduled near maturity. — Bloomberg