Merger Loans Surge in Asia as Bank Yield-Race Encourages Buyouts

Acquisition lending in Asia tripled in the first quarter as banks chased higher-yielding assets to offset a slump in other syndicated financing, prompting borrowing costs to fall.

Loans for acquisitions in the Asia-Pacific region outside of Japan jumped to $11.4 billion in the first three months of 2013 from $3.8 billion a year earlier, according to data compiled by Bloomberg. Interest margins in the region for U.S. dollar-denominated M&A loans slid to 343.8 basis points from 382.5 basis points. That still exceeds the 263 basis points on lending for general corporate purposes, the data show.

Fees that can be at least 50 percent higher are also prompting Asian lenders to offer more acquisition financing after they had their slowest start to the year for general syndicated lending since 2009. Companies in China are already the world’s second-most acquisitive this year after the U.S, according to Bloomberg data, and a surfeit of funds may boost activity further, bankers say.

“The momentum in acquisition financing that we saw in the first quarter will continue into the second quarter, both in terms of sponsor-led leveraged buyouts as well as corporate-to-corporate transactions,” said Siong Ooi, head of Asia-Pacific leveraged finance and loans at Bank of America Corp. “The liquidity in the bank market has been a lot stronger this year and gives corporates looking to make larger acquisitions the confidence that they can get the requisite amount of debt financing at a competitive cost.”

Global M&A volumes rose 7.6 percent to $519.1 billion in the first quarter from $482.3 billion in the same period of 2012, according to Bloomberg data. Although they fell by 8.7 percent to $2.21 trillion last year compared with 2011, activity in China jumped 9.5 percent to $125.9 billion, Bloomberg data show.

Asia Billions

Banks are arranging loans totaling at least $5 billion for acquisitions in the Asia-Pacific region, according to Bloomberg data. They include a $2 billion package for CVC Capital Partners’ bid for KFC Holdings (Malaysia) Bhd. and parent QSR Brands Bhd.; a A$775 million ($803.8 million) loan for TPG Capital’s buyout of Inghams Enterprises Pty Ltd.; and an $830 million facility to back Citic Telecom International Holdings Ltd. bid for most of Companhia de Telecomunicacoes de Macau.

Asian banks sitting on excess cash are seeking more lucrative returns through acquisition financing as the cost of global money stays at record lows, with lenders in regions including China and Australia seeking “jumbo” syndication deals, said David Irvine, a Hong Kong-based partner at Linklaters LLP, which advised Citic Telecom’s deal.

“Banks are looking to secure yield where they can in the currently low interest rate environment,” he said.

Carlyle Bid

Focus Media Holding Ltd., the subject of China’s biggest leveraged buyout, last month attracted 18 lenders to a $1.1 billion loan backing the Carlyle Group-led bid. Twelve were Asian banks, lending 76 percent of the total, three people familiar with the matter said on March 26.

“For every European bank that pulled back last year, an Asian bank stepped up to replace the lost liquidity,” said Stephen Williams, HSBC Holdings Plc’s head of debt capital markets for Asia Pacific, in an interview. “There has been less borrowing in the loan market because of the exceptionally low rates in the bond market and because corporates are cash rich.”

Syndicated lending volumes fell 10.3 percent to $60.6 billion in the Asia-Pacific region outside Japan in the first three months of 2013, the lowest first quarter since 2009, while the number of deals slumped 25.6 percent to 212, Bloomberg data showed. In contrast, sales of bonds in Asia excluding Japan surged 12.7 percent to a record $204.7 billion in the same period while the number of transactions rose 9.3 percent to 1,275.

Cnooc, Nexen

Hong Kong syndicated deals surged more than four-fold to $15.3 billion in the first quarter even as volumes in seven of the Asia-Pacific region’s 11 markets declined, Bloomberg data show. They were largely boosted by Cnooc Ltd., China’s biggest offshore oil and gas explorer, signing a $6 billion facility in February with 20 banks for its acquisition of Canada’s Nexen Inc.

Companies in China, where state-owned enterprises sought backing for natural resources and energy-related assets last year, will need further funds for local and off-shore purchases, according to Linklaters’ Irvine. They have already signed $31.4 billion worth of M&A deals this year, Bloomberg data show.

“We are beginning to see Chinese private enterprises also going out to buy assets outside of China,” said Irvine. “This trend is going to continue.”

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