A chunk of borrowings out of southeast Asia have received a strong response during retail syndication, with many either increasing in size or exercising a greenshoe option. Recent examples of syndication successes include real estate promoter Vietnam Investment Group’s (VIG) $200m three year bullet that saw a $75m greenshoe being tapped and Indomobil Finance’s $300m facility that wound up at triple the launch size.
But despite the success of these trades, loan volumes in the region have lagged this year and market conditions, with plenty of money chasing fewer deals, have made it ideal for lesser known or relatively weaker credits from southeast Asia to tap the offshore loan market.
Specifically, banks are increasingly looking at top tier or state-owned assets from countries in the Mekong region that are growing rapidly and some of whose credit standings have improved over the past few years. For example, Moody’s upgraded Vietnam’s sovereign rating to B1 from B2 in 2014.
Mekong countries are developing and growing rapidly and banks that did not have a presence or relationships there before are open to the idea by coming in for a smaller ticket as a retail lender at first.
“We are looking at Myanmar, Indonesia and China [for structured deals]. Banks chasing deals are looking beyond the usual Indonesia, Malaysia, Thailand and into new markets,” said a senior Singapore-based banker.
One outcome has been a pick-up in deal volumes from Vietnam. “People have a lot of room for frontier market exposure,” said a senior banker at a big international lender.
Year-to-date US dollar and euro denominated syndicated loan volumes out of Vietnam are up 62.6% year on year, to $1.6bn, according to data from Dealogic. While just one or two more financings out of the country can easily skew data, considering how infrequently Vietnamese credits borrow offshore, the numbers indicate a keenness of borrowers there to seek foreign currency funds, and importantly a willingness of banks to lend money to them.
A rare Cambodian deal is also in the market. Mandated lead arrangers and bookrunners Australia and New Zealand Bank, Cathay United Bank and CIMB are helping Khmer Brewery seek a $80m loan. The company is paying a margin of 550bp for the facility, which has an average life of three years.
The leads are understood to be targeting banks that already have a presence in Cambodia, keeping in mind the substantial risks. This is a sensible strategy as market participants cautioned against interpreting the uptick in interest as a massive surge in enthusiasm. Risk considerations ultimately outweigh pricing when it comes to banks’ investment decisions.
“The Mekong region is hot but there are significant regulatory and political risks that banks need to understand and be careful about,” said a syndicate banker at European bank.
“Key opportunities lie in more structured kinds of transactions,” said the senior Singapore-based banker.
Structures include mitigation of risk via credit enhancements such as guarantees. This was the case with VIG’s facility that had the backing of a guarantee from VietinBank, one of the four largest state-owned commercial banks in the country.