All’s well that ends well for Asian loans
Syndicated loans bankers in Asia had braced themselves for a rough 2016, hurt by clients’ preference for cheaper, local currency options. But as the year wraps up, adversity has pushed loans houses to innovate by finding opportunities outside their comfort zones and tapping into new sources of liquidity.
Year-to-date Asia Pacific ex-Japan syndicated loan volume stood at $395bn, down 11% compared with the corresponding period last year, according to Dealogic. This is the second consecutive year of volume decline.
This drop is not lost on loans bankers and had been well anticipated. At the beginning of the year, they traded in cautious optimism for realism, expecting the bite from monetary loosening in Asian countries to get worse. Clients were increasingly turning to local currencies given declining interest rates and a negative outlook on currencies such as the renminbi and rupiah, which made it harder to rationalise raising or keeping dollar liabilities.
Capital expenditure was also pretty much at a standstill amid macro-economic uncertainty. And more painfully, prized clients were using the demand-supply dynamics to refinance existing loans at razor thin rates — forcing banks to choose between a shrinking asset book and lower returns.
The situation has been dire but the markets have pushed loans desks to work twice as hard to deliver on their budgets and eliminated any room for complacency. It also made them look harder at what they do and how they could do it better, and that is no bad thing.
One way this manifested itself is in unearthing appetite for asset light companies. While lenders have traditionally been wary of businesses where cash flows were generated from intangible assets, they had no trouble jumping on deals for behemoths like Alibaba, Tencent, and debutante Baidu, which raised a collective $10.4bn this year.
But the real winners were the smaller firms in the industry. Take Cogobuy, for example, an e-commerce platform that functions as a virtual marketplace for electronic goods in China. The company walked away with $194.5m from its syndicated loan, nearly double the launch size, despite being a first-timer.
Banks have also introduced of new sovereign names into the loans mix. Taiwanese banks made the most of their long presence in ASEAN by persuading Laos to tap the loan market. Most recently, Papua New Guinea is testing appetite for a $200m debut facility.
And Mongolia, which received the cold shoulder in its first attempt at a bond this year, also found demand from banks. The country raised $250m from a syndication in March.
That was not all; 2016 was the year that international banks had to contend with the immense balance sheets of Chinese banks. But while this meant some bumper deals were run more like clubs, the more savvy loans houses harnessed the abundant Chinese liquidity by targeting mid-tier lenders during syndication.
If you just look at the numbers, it was certainly not a vintage year for loans. But the milestones achieved in the syndications market reflect a combination of innovation and resilience that make 2016 a year to remember.