It’s been a bleak period for loans bankers in Asia. Dollar volumes from Asia ex-Japan have shrunk by nearly 40% so far this quarter, standing at $22.1bn. The numbers give plenty of reason to slump into a depression, especially when the bond market is doing brisk business.
But numbers can often be misleading when studied in isolation. The figures for the first half of the year tell a different story — dollar loans out of Asia ex-Japan actually rose by 7% year on year in that period, according to Dealogic.
Instead of moping, bankers should take heart from the fact that the inactivity in the third quarter does not necessarily reflect a reluctance among borrowers for loan funding. It is simply the way the loan market works.
The early part of 2014 was rife with event-driven financing as well as refinancing of bridges taken last year. Names such as Thailand’s CP All — with a $4bn bridge refinancing — and ONGC Videsh with a $1.775bn acquisition loan graced the loan markets in the first period of this year, taking volumes to new levels.
Not only that, but tightness in onshore liquidity in China also led several Hong Kong and Chinese borrowers to hit the offshore market in droves during the second half of last year and the first half of this year.
But with the Chinese central bank pumping liquidity into the system to mitigate an economic slowdown, staying onshore makes sense for several of these issuers.
Adding to the poor volumes was also an uncertain election climate in two countries that typically contribute to deal flow in big numbers — India and Indonesia.
A lot of Indian corporates stayed away from taking new money this quarter as they deferred their capital expenditure related funding plans in the face of elections and then a new government. Many in Indonesia also decided to adopt a wait and see approach in the run-up to its presidential elections.
That’s now set to change. The new governments in both the countries are widely seen as pro-business, meaning potential borrowers are already readying their fundraising.
For instance, Indonesian natural gas major Pertamina has issued a request for proposals for a $1bn loan, while firms including Tower Bersama, Solusi Tunas Pratama are bidding to get their hands on XL Axiata’s tower assets — which will spur some more debt-raising. Besides these, a $1.275bn loan for Pelabuhan Indonesia II, talks for which began in May, is poised to make its way to the loans market this October.
Indian companies are also set to make a big return to loans, not least to meet their growing capital expenditure requirements. Indian Oil Corp is already making headlines with a C$600m ($541m) loan for financing working capital requirements at its Canadian gas fields. Meanwhile, state owned refiner Bharat Petroleum Corp recently announced it will invest Rp130bn ($2.1bn) over the next four years to expand in Mozambique and Brazil, throwing open more opportunities for loan funding.
China does not seem to be far behind. Deal flow out of Hong Kong and China has been healthy enough during the first half, and is likely to continue.
One big reason Chinese borrowers will hurry up with their fundraising is Taiwanese banks and their appetite for China credits. Taiwanese lenders are nearing their exposure limits to Chinese names, meaning many are using a first come, first served approach when dealing with Chinese issuers. The earlier borrowers can squeeze in their fundraising, the better reception they will get.
The outlook, then, is positive, however bleak the immediate past has seemed to be. The quiet so far this quarter has given bankers plenty of time to cook up new deals, which are likely to make their way into the market in the next quarter. With luck, the pipeline may well end up taking 2014 volumes past those of last year.