Tech companies have never seemed more interesting than now to loans bankers. During the first quarter of this year, bankers closed the syndication of Focus Medias $1.525bn leveraged buy-out loan, gathering chunky commitments at the senior level. General syndication for the digital media company was avoided altogether, and bankers lauded the successful completion of the deal.
They are now even more optimistic about targeting other tech companies, and there are a number of compelling factors drawing their interest. Firstly, banks are flush with liquidity and want to bring down the cash reserves on their balance sheets. The number of borrowers coming from traditional markets such as oil and gas, construction, property, retail has been limited so far this year, and banks need alternatives to diversify their portfolios.
Lenders are also more willing to look further down the credit curve. At a time when margins are low and cash is abundant, rarer, asset-light tech names will typically pay more than some of the more frequent borrowers, and can tempt lenders with attractive margins. The dynamics are such that even if the amount of risk on their books increases, banks are happy to accept that for the greater profit. A marked change from a year ago.
Focus Medias successful close, banks teaming up for Alibabas jumbo $8bn loan and an oversubscription for TCL Multimedia Technology Holdings $150m deal are just a handful of examples of the big names gaining even bigger demand.
All this bodes well for the numerous tech companies in Asia that are considering raising funds. But while tech companies are on bankers radar screens, there is a catch.
Lenders are only interested in the big market leaders. Small fry need not apply at least not for now.
Underneath the surface, banks remain cautious about the business models of tech firms, which are very different from the companies to which they normally lend. This makes them reluctant to get in too deep with companies not altogether familiar to the market.
Before smaller firms can benefit from banks new interest in the tech sector, todays trends need to go further. That means banks will have to remain flush with cash and margins sink ever lower in the traditional sectors. The good news is that there is every chance this will happen.