Fed-Wary Borrowers Grab Jumbo Loans in Asia Before Margins Rise

Asian companies are raising the largest-sized loans in more than five years as they seek big-ticket deals before a potential rise in lending costs.

Alibaba Group Holding Ltd. and Origin Energy Ltd. syndicated about $15 billion of facilities in the third quarter, leading companies in the Asia-Pacific region outside Japan, according to data compiled by Bloomberg. That boosted the average deal size to $333 million, the highest since the first quarter of 2008. Average margins for dollar-denominated loans fell 22 basis points from a year earlier to 266 basis points on Sept. 30, the data show.

Many borrowers avoided selling bonds in the third quarter amid a widely-expected easing of U.S. central bank stimulus that didn’t occur. Resulting volatility in that market helped favor syndicated loan volumes in Asia, with companies including China National Offshore Oil Corp. adding to this year’s total of $285 billion of deals so far. That compares with $276 billion for the same period in 2012, Bloomberg-compiled data show.

“Corporates are becoming more proactive and open to raising financing when the market conditions are strong, which is leading to earlier refinancings and more opportunistic fund raisings,” said Andrew Ashman, a Singapore-based director of Asia-Pacific loan syndication at Barclays Plc. “When the tapering starts, we may find that bank funding costs increase and this could lead to price inflation in the loan market.”

Biggest Loan

Alibaba, China’s biggest e-commerce company, in July completed an $8 billion facility, the biggest syndication in the region this year, Bloomberg-compiled data show. The company, which last week canceled plans for a Hong Kong initial public offering, paid an average margin of 242 basis points above the London interbank offered rate for the loan. In early 2012, it paid an average of about 475 basis points for a $3 billion loan to take its Alibaba.com Ltd. unit private.

Origin Energy, Australia’s biggest electricity retailer, cut borrowing costs by as much as 50 basis points in August on a A$7.4 billion ($7 billion) facility, Bloomberg-compiled data show. The company paid 170 basis points more than the bank bill swap rate on the five-year portion of the loan, the nation’s biggest this year, compared with the 220 basis-point margin it paid on a similar-maturity loan in October 2012, the data show.

“The price tightening we have seen this year has been driven by the vast liquidity available and the increasing number of banks participating in the market,” said Loretta Venten, Commonwealth Bank of Australia’s head of loan markets and syndications in Melbourne.

Fed Anticipation

The U.S. Federal Reserve in September bucked economist predictions that it would scale back $85 billion of monthly bond purchases that have bolstered credit markets. Anticipation of the central bank’s tapering pushed the average yield on U.S. dollar corporate-bonds in Asia to a 14-month high of 5.18 percent on Sept. 5 before falling back to 4.79 percent on Sept. 30, according to a Bank of America Merrill Lynch index.

Volatility in bonds and other markets meant borrowers found loan pricing comparably favorable in the third quarter, which wasn’t the case earlier this year, said Phil Lipton, HSBC Holdings Plc’s Hong Kong-based head of syndicated finance for Asia-Pacific. Average loan margins in the region have fallen 26 basis points since Dec. 31, Bloomberg-compiled data show.

“This downtrend is now stabilizing,” said Lipton. “Headwinds in places like Indonesia and India could potentially lead to pricing volatility there. But pricing in other countries in the region is likely to remain relatively static.”

China, Australia

While Asia’s third-quarter loan volumes fell 4 percent from a year earlier to $93.9 billion, companies in China, Hong Kong, Australia, the Philippines, Malaysia and Indonesia borrowed more during the period, the data show. Chinese companies are leading about $17 billion of additional deals in or near syndication in the region, after the nation’s cash-hungry borrowers turned to the offshore loan market to refinance debt or support acquisitions amid a cash crunch in June.

China Petroleum & Chemical Corp., Asia’s biggest refiner, has sent requests for proposals to banks for a $2.5 billion five-year term loan for working capital, two people familiar with the matter said on Sept. 25. Shuanghui International Holdings Ltd. is marketing a $4 billion loan in general syndication, to back its takeover of Smithfield Foods Inc., which completed last week.

“We’ve seen a noticeable pick-up in M&A and that has resulted in some sizable loans in this region, providing a much needed boost to the market,” said Barclays’ Ashman. “With the improving global macro outlook and continued availability of bank liquidity, I would expect this trend to continue.”

Merger Loans

Companies in emerging Asia markets led by China and South Korea spent $73.7 billion on acquisitions in the third quarter, 37 percent more than a year earlier, Bloomberg-compiled data show. That helped boost loans for such transactions in the Asia-Pacific region outside of Japan to $12.6 billion in the three months from about $6 billion a year ago, the data show.

Indian companies borrowed more than $8.1 billion of loans since July 1, even amid the nation’s worst economic slowdown in a decade, according to Bloomberg data. In addition, at least $5 billion of Indian deals are in or near syndication, including a $1.75 billion-equivalent loan being marketed by Mukesh Ambani’s Reliance Industries Ltd. Vedanta Resources Plc, controlled by billionaire Anil Agarwal, is syndicating a $1.2 billion five-year loan, a person familiar said in August.

“With the volatility seen this quarter, the profile of the loan market has been raised because of its resilience,” said HSBC’s Lipton. “It can be more stable and reliable than the alternatives.”

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