Difficult conditions in the financial markets will hurt Asia’s growth plans, the regional chief executive of Standard Chartered Bank has warned in an interview with Emerging Markets.
His comments highlight growing fears that higher borrowing costs will make it harder for Asian companies to meet earnings targets and fulfil expansion plans, adding to already severe pressures from inflation and a slowdown in the US economy.
“The short answer is yes, [the lack of access to funding] will have an impact on Asian growth,” said Jaspal Singh Bindra, chief executive officer for Asia Pacific at Standard Chartered Bank. “How limited that impact will be depends on the severity of the credit crisis in the West and how long that lasts.”
The credit crunch has pushed up funding costs for Asia’s local banks, and the looming threat of inflation is making it more expensive for companies to borrow money in the domestic debt markets.
“The focus on inflation in the region is growing, and there is a risk that that could shut the local markets,” said Stephen Williams, head of global capital markets for Asia Pacific. “There has been a re-pricing in many of the local markets recently, and banks are less active in the loan market. That will have an impact on corporate borrowers.”
Debt finance has been less readily available in recent months, forcing companies to use more expensive equity to fund their expansion plans.
Wesfarmers, Australia’s second largest retailer, sold more equity in a A$2.5 billion rights issue at the end of April, refinancing part of the A$10 billion funding package backing its A$18.2 billion purchase of retailer Coles Group. It turned to the equity markets because debt costs had risen dramatically since it first discussed the takeover in April 2007.
India’s Tata Steel, which borrowed GBP3.15 billion of short-term debt last year to finance its acquisition of European rival Corus, also refinanced part of that in the equity market in December. The company had earlier been talking to banks about a long-term debt deal.
“Local funding is not as readily available,” said Jon Pratt, head of debt capital markets for Asia Pacific at Merrill Lynch in Hong Kong.
“Rates are rising because of inflationary pressures in a lot of Asian markets, and that will push a lot of borrowers who have been relying on local banks towards the capital markets, which are starting to re-open.”
Asian banks are under pressure to pass on their own higher funding costs to customers that are already being squeezed by rising food and energy prices. Alternative sources of funding are available, but bankers have warned that a prolonged US slowdown could make things worse for Asian companies.