Cheaper Syndicated Loans to Lure Borrowers From Bonds in Asia

Narrowing interest margins will spur demand for syndicated lending in Asia this year and reduce bonds’ biggest share of debt capital markets in three years.

The proportion of loans to total debt arranged in the Asia-Pacific region outside Japan shrank to 66 percent last year, the least since 2009, according to data compiled by Bloomberg. Corporate bond sales surged 78 percent to a record $199.2 billion in 2012 while syndicated bank debt volumes slid 18 percent to $378.5 billion, the data show.

Rates at which lenders raise capital are falling as bond-buying by central banks to stimulate the world economy boosts the supply of dollars in the financial system. That’s translated into cheaper loans for companies, with average interest margins for U.S. dollar-denominated loans signed this year falling to 319 basis points more than the London interbank offered rate from 358 basis points in the last six months of 2012, Bloomberg data show.

“There’s been a huge decrease in bank funding costs over the second half and I think that will result in a 10 percent to 15 percent drop on average in loan pricing across Asia in 2013,” said Boey Yin Chong, the Singapore-based managing director of syndicated finance at DBS Bank Ltd. “That stability in funding costs will help support Asia syndicated loan volumes this year, although bonds will still provide some competition.”

‘Fantastic Run’

Syndicated bank debt volumes fell from $460.3 billion in 2011, when the facilities represented 80 percent of total bond sales and loans. The proportion was 75 percent in 2010 with $370.2 billion of signed agreements, the data show.

“Bond markets have had a fantastic run in the last few months thanks to great market and liquidity conditions,” said Atul Sodhi, the Hong Kong-based head of global loan syndication at Credit Agricole SA. “In the recent weeks we have seen a strong improvement in liquidity and market conditions in the loan market. As the year progresses, my feeling is the balance will shift back towards loans.”

Bond sales surged as the cost of borrowing in the U.S. currency plunged to record lows. Average yields on dollar notes in Asia fell to 3.77 percent Jan. 15, the least in data going back to 1996, according to Bank of America Merrill Lynch’s Asian Dollar Corporate Index.

About $8.4 billion of loan facilities have been signed since Dec. 31, data compiled by Bloomberg show.

Noble, Citic Telecom

Noble Group Ltd., Asia’s biggest publicly listed commodity trader, earlier this month approached its relationship banks for a $2 billion two-part loan and expects to price the facility at a lower rate than its $2.36 billion borrowing which closed in 2012, a person familiar with the matter said Jan. 15.

Citic Telecom International Holdings Ltd. is raising $1.25 billion via a two-part financing from about eight banks for its proposed 79 percent stake purchase of Companhia de Telecomunicacoes de Macau from Cable & Wireless Communications Plc and Portugal Telecom SGPS SA, Chief Financial Officer David Chan said in an e-mailed response to questions from Bloomberg News on Jan. 17.

“Pricing levels are fantastic,” said Sodhi, who is also the chairman of the Asia Pacific Loan Market Association, before the organization’s annual global summit in Hong Kong today. “In addition to M&A financing, we’ll see a number of regular corporate borrowers coming back in a big way.”

Kingboard Chemical

Kingboard Chemical Holdings Ltd., which last took a syndicated loan in April 2011, is marketing a HK$4 billion- equivalent ($516 million) facility and offering a margin of 215 basis points, a person familiar with the matter said Jan. 23. The average margin for loans signed in Hong Kong last year was 257 basis points, Bloomberg data show.

“We’re seeing a normalization in capital markets and both liquidity and availability of long-term funding to financial institutions is progressively coming back to pre-crisis levels,” said Didier LeBlanc, the head of loan syndication, acquisition and leveraged finance for Asia-Pacific at BNP Paribas SA. “Loan pricing may not continue to fall as fast if we see more new money transactions.”

As banks’ wholesale borrowing costs fall, the rate at which they can lend typically reduces. The yield premium for bank bonds globally has fallen to 153 basis points as of Jan. 29 from 307 basis points 12 months ago, Bank of America Merrill Lynch’s Global Banking index shows. Bank note yields touched 2.33 percent Dec. 28, the least in data going back to 1996, according to the index.

Mergers & Acquisitions

China will also “remain a very interesting market for banks in 2013, considering the government support for economic activity and the fact Chinese companies seem very keen on cross-border activity,” Credit Agricole’s Sodhi said.

Mergers and acquisitions by Chinese companies rose 7.6 percent to $85 billion in the second half of 2012 from the first six months of the year, Bloomberg-compiled data show.

CT Corp., a Jakarta-based media, retail and entertainment group, is marketing a $750 million loan, the proceeds of which were used to help acquire the 60 percent of Carrefour SA in Indonesia it didn’t already own, a person familiar with the matter said Jan. 14. Focus Media Holding Ltd. arranged to meet banks in Hong Kong and Taipei last week as bidders led by Carlyle Group LP syndicate a $1.075 billion buyout facility, other people familiar with that matter said.

“Last year we saw a few event-driven deals whether because of privatizations or buyouts and that’s going to continue in 2013 because valuations have come down a fair bit,” DBS Bank’s Boey said. “Syndicated loan volumes in 2013 won’t reach the peak they did in 2011, but 5 percent to 10 percent higher than 2012? Sure.”