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CP Group’s loan response will be hard to replicate

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By Pan Yue
16 Jun 2020

The strong response from banks to Charoen Pokphand Group’s acquisition-related loan is not a true reflection of conditions in Asia’s syndications market — despite what some may say.

Things appear to be looking up for Asia’s loan market. After weeks of scant new launches, borrowers are slowly but steadily returning. A handful of companies, from China and southeast Asia, have recently opened their deals for syndication.

There are a few reasons for the revival. One is simply a realisation among issuers that market conditions are unlikely to get back to normal anytime soon, as US-China tensions continue to simmer and a second wave of coronavirus infections hits China and numerous US states. Companies are getting on with their fundraising plans, having shelved the previous wait-and-see approach. 

The second, and more important, reason is the apparent appearance of a bellwether, say loans bankers. Since Covid-19 struck, many of Asia’s borrowers have been reluctant to be among the first to test appetite for a loan. Companies and banks were waiting for a benchmark to have a sense of how much premium borrowers would need to pay.

Many are pointing to CP Group’s loan as a sign that demand has come back.

Thai retailer CP Group is seeking a $7.15bn-equivalent borrowing to support its acquisition of Tesco’s Thai and Malaysian businesses. The loan is still in general syndication, but GlobalCapital Asia understands that many banks have found the deal attractive, and are gaining internal approvals to join with chunky tickets.

JP Morgan, Siam Commercial Bank and UBS are the original mandated lead arrangers and bookrunners. BNP Paribas, China Construction Bank, Maybank, Mizuho, OCBC Bank and United Overseas Bank joined as MLABs during the senior stage.

The signs are positive. But bankers and other borrowers should still tread cautiously as CP Group has some advantages that others don’t.

For starters, CP Group’s deal is a bridge loan that carries short tenors of one year and 1.5 years for two tranches respectively. This offers lenders more comfort, given their increased preference for short tenors in recent months due to uncertainties about the Covid-19 pandemic.

The juicy price on CP Group’s deal also contributes to the strong response in the retail market.

The loan pays a margin of 184bp with a top-level all-in of 234bp, while the margin for the bridge facility will eventually step up to around 300bp.

That has made the deal, viewed as a standard corporate loan despite the acquisition nature of the fundraising, attractive for banks seeking higher yielding loans in this environment.

Although some borrowers have taken tough market conditions into consideration, and are willing to pay an additional 30bp to 50bp for their loan returns this year, CP Group’s pricing is still much wider. This is especially the case with some Indonesian borrowers that have been pushing down pricing aggressively in recent years.

For instance, Bank Rakyat Indonesia’s last offshore loan sealed in 2019, with tenors of one, three and four years, offered margins of 40bp, 74bp and 84bp, respectively. Even if the country’s largest bank is willing to pay a 50bp premium for its loan return this year, it is still far below CP Group’s level.

In addition, CP Group also benefits from its deal timing.

Its loan was opened for banks in the senior stage in March, and launched into general in mid-May. Markets were still quiet then, pushing more banks to pursue CP Group. Now, however, more deals are available for banks to choose from.

That’s not to say new deals will fall through. Banks still need more business to beat the first quarter slowdown.

Their appetite has already been seen in a few instances. BRI and Indomobil Finance Indonesia, both of which are seeking dollar loans, have recently changed tack. Both initially planned to wrap up their deals as clubs, but now plan to do general syndication, GlobalCapital Asia understands.

The change is driven by a surge in reverse enquiries, mainly from Taiwanese banks.

But companies and banks should still temper their expectations. CP Group’s deal could very well fly off the shelves – but it is no barometer for other borrowers.

By Pan Yue
16 Jun 2020