It has been impossible to turn on the news over the last few months without hearing of more travel restrictions being imposed as the coronavirus spreads around the world. In China, those restrictions have been applied internally, limiting the ability of citizens to go from one province to another. There are alarming consequences for the global economy, but the impact at a more local level should not be overlooked — roadshows and site visits for syndicated loans have been cancelled, forcing many deals to be delayed.
By May 4, some 92 loans in Asia ex-Japan worth $60bn had been launched or closed in US dollars, Hong Kong dollars or euros, the three main currencies of Asia’s offshore loan market. That represents a big drop from 182 deals worth $86bn during the same period last year, according to Dealogic.
Bankers are divided over how quickly the market will recover. Some believe that a rapid rebound can be expected one or two months after the virus is brought under some control, as companies that have outstanding debt maturing soon will need to return to the market for refinancing. But others think difficulties around originating and developing new clients because of travel bans will result in a continued slowdown of activity in the second half of the year.
“Our main clients are Chinese companies, but we can’t meet those who are based in mainland China, so we are focusing on Hong Kong clients at the moment,” says a senior banker from a big Chinese lender. “Origination has been slowing down, and the progress of discussion with clients is also quite slow.”
Bankers are adapting quickly to meet their budgets for the year. For example, Chinese banks, which tend to focus almost entirely on their domestic clients, are trying to find business from bilateral and club deals. Some are making up for the reduced deal flow by committing more to the loans they are comfortable with.
“We don’t have much in the pipeline to launch into syndication soon, but we are working on a few club deals,” says a Hong Kong-based banker from another big Chinese lender.
Taiwanese banks are proving cautious about the impact of the coronavirus on Chinese companies’ financials. They are further shifting their focus to southeast Asian countries, continuing a trend that started before the coronavirus. Many Hong Kong-based Taiwanese bankers say they are unlikely to get any internal approvals for deals that are not from their existing clients. As a result, they are now buying southeast Asian state-owned companies’ deals from the secondary market.
Some Asian bankers are trying to rely on chunky refinancing deals from large corporates, which are likely to make their regular returns to the loan market. Unlike the bond market, which faces many uncertainties, the loan market is comparatively stable. With strong bank liquidity, bankers expect some companies to tap the loan market for bond refinancing.
ESG boost
Other bankers are hoping to see a boost for deals that fit the environmental, social and governance (ESG) category.
Deal volume of green and sustainability-linked loans in Asia ex-Japan hit $14bn last year compared to $9bn the year before, although the deal count dropped slightly from 27 to 23, according to Dealogic.
Chinese, Hong Kong and Singaporean companies have been more active than others in the sector, partly because of encouragement from their governments. For example, Singapore has set up a $2bn investment programme to support green finance and help achieve its goal of becoming a global sustainable finance hub. Stock exchanges in Hong Kong, Singapore and China now require companies to include ESG reporting.
Southeast Asian borrowers will increasingly get in on the act. Otoritas Jasa Keuangan, Indonesia’s financial services authority, launched a sustainable finance roadmap in 2014 but deal flow has only started to take off in the last few years. Last July, DBS provided an export financing sustainability-linked loan to Sumatera Timberindo Industry, a premium wooden door manufacturer.
“For Vietnam and Indonesia, there are a lot of proactive discussions around green financing, particularly the domestic banks in Indonesia,” says Chris Bishop, a partner at Allen & Overy in Singapore. “Indonesian companies may see it as an additional way to access capital in the international markets, and support their reputation as good corporate citizens.”
Unlike green loans, which require borrowers to use the proceeds for only green projects, sustainability-linked deals are more flexible and can be used for general corporate purposes, making them a better option for companies from developing countries, which may lack a comprehensive green rating system.
Sustainable loans have long appealed to image-conscious banks. They may now help sustain the loan market. GC