Africa Loans: You’ve got a (new) friend in me
China's growing presence in Africa is nothing new. But Asian banks are finally coming to the continent's loan market with big tickets and this is not the time for other lenders to sit on their hands.
At a time when South Africa is on review for downgrade by two rating agencies and many international banks are bearish on the continent, Chinese lenders stepped up to give huge tickets in the latest South African bank loans.
Chinese lenders were at the forefront of new deals for Standard Bank of South Africa and Investec.
First Investec came to the market with a $635m three year refinancing at the beginning of April and grew its loan from $400m to $635m on the back of strong demand.
Two new Chinese banks, China Construction Bank and ICBC, joined Investec’s relationship lenders and two European banks, Raiffeisen Bank International and RBS, left.
Next, Standard Bank of South Africa tapped the market for a $1bn loan — with four Chinese banks in the top tier.
In the latest deals — other than a couple of European banks falling by the wayside — no lenders have been crowded out by increased demand from challenger banks.
But as Asian banks ramp up their focus on Africa, margins will become tighter and terms more competitive which could squeeze out traditional lenders.
European and US banks are doing very little in the way of new deals in Africa. Bankers talk about increasing loans for African multilateral institutions so that they can finance African borrowers but with the risk of an single-A rated development bank.
But that is a sanitised approach to lending.
While international lenders are taking the foot off the pedal, Asian banks, particularly Chinese banks, are stepping up. Not just with easy two year loans for multilaterals, but more challenging five year unsecured financings.
European and American lenders may be wary of the credit risks of doing business in Africa today, but if they sit back they will be replaced as the relationship banks of tomorrow.
If you don’t keep close to the market, then African borrowers are going to make new friends in your absence.