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Australian Loan Volumes to Exceed $100 Billion in 2014: Mizuho

Syndicated loan volumes in Australia may exceed $100 billion again this year thanks to a strong pipeline of refinancings and government privatization projects, according to Mizuho Australia Ltd., a unit of Japan’s Mizuho Bank Ltd.

“It’s a borrower-friendly market,” Andrew McDermott, the Sydney-based head of syndication at Mizuho Australia said at today’s Asia Pacific Loan Market Association global summit in Hong Kong. “Banks are willing to lend, they just have to find the right deal at the right price. Volumes may exceed $100 billion this year.”

Syndicated loan volumes in Australia climbed to $104 billion in 2013 from $83.4 billion a year earlier, according to data compiled by Bloomberg. Banks in the South Pacific nation are trying to expand their lending business amid plunging local margins and increased competition as a cooling mining boom slows the economy.

That heightened rivalry forced a 61 basis-point drop in average local borrowing costs to 243 basis points last year, the Bloomberg-compiled data show. Pricing for investment-grade borrowers may be “close to the bottom” while margins for leveraged and project finance deals may compress further, according to Robin Dutta, Australia & New Zealand Banking Group Ltd.’s acting head of loan syndications in Australia.

Interest Margins

This year will see a steady pipeline of refinancings while new money deals are expected to come from public-private partnerships and privatizations, Dutta said today in Hong Kong.

The jump in volumes last year was largely due to borrowers taking advantage of favorable interest margins to refinance existing loans, according to Sean Sykes, the Sydney-based executive director of loan markets and syndications at Commonwealth Bank of Australia.

Refinancings will continue to underpin lending volumes in 2014, along with infrastructure and project finance deals, Sykes said in an e-mailed response to questions ahead of today’s conference. Mergers and acquisitions funding may also increase in Australia this year from a low base, he said.

“Underlying conditions for M&A, as reflected in positive sentiment in debt and equity markets, are definitely accommodative,” Sykes said. “However the extent to which we will see more M&A will ultimately be driven by business confidence in executing acquisition growth strategies.”

Institutional Lenders

Participation by institutions in syndicated loans has been curbed by strong bank competition and a deepening domestic bond market, according to Sykes. Infrastructure projects and lower-quality borrowers may provide more opportunities for those sorts of lenders this year, he said.

“Higher yields that are typically associated with sub-investment grade issuance typically align with the requirements of these players,” he said.

Australia’s four largest banks almost doubled their Asia-Pacific syndicated loan market share last year as they sought to boost profits amid lower margins. Emerging Asian markets are providing the so-called Big Four with more lucrative business including finance for acquisitions, which have sunk by more than 30 percent in two years in Australia, Bloomberg-compiled data show. Deal volumes in Asia, meanwhile, are at their highest in at least a decade.

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