Top-Tier Hong Kong Developers Cut Loan Costs by as Much as 40%By
Banks are facing lower returns on loans amid slowing dealflow
Average loan margin falls to five-year low year to date
The latest round of financing being raised by Hong Kong real-estate developers Wheelock & Co. Ltd and Sun Hung Kai Properties Ltd is likely to drive down loan pricing further as banks compete to lend to corporates by lowering interest rates and fees.
Despite the recent imposition of a new stamp duty, and expectations that rate hikes will curb home-buyer demand, developers are asking for 20% to 40% discounts on loan pricing compared to what they paid for similar financing in the first half of the year, knowing that banks are flooded with liquidity and craving quality assets.
“Pricing compression will continue because the market remains very liquid and banks are keen to use their liquidity whilst it is available,” Wayne Green, BNP’s Hong Kong-based head of loan syndicate & sales Asia-Pacific, said at a conference in Hong Kong on Dec. 1. “This could lead to a further lowering of prices into 2017 and a continued squeezing on returns as banks face increasing liquidity and capital costs.”
Wheelock is asking for an all-in, which include an annual interest rate and an one-off handling fee, of 70 to 80 basis points over the Hong Kong interbank offered rate for a five-year secured loan of about HK$6 billion backing a residential project in Kwun Tong. In February, the company paid 129 basis points all-in for a five-year facility for its Lohas Park 7 residential project.
Sun Hung Kai, which signed a five-year loan offering 103 basis points all-in in March, is currently looking to borrow at 80 basis points all-in for a refinancing with the same tenor.
Lenders in Hong Kong have witnessed dwindling numbers of syndicated and club loans in recent years. Transactions fell 10% to 133 deals year-to-date from the same period last year, Bloomberg data shows. The former British colony’s average loan margins over the London interbank offered rate dropped 15% year-on-year to 192.21 basis points so far in 2016, the lowest since 2011.