Big corporates appear increasingly to be making a beeline for Asia's revitalized loan market while banks, eager to put more money to work, are looking to exploit the opportunities created to cross-sell their services.
When Indian conglomerate Reliance Industries closed its $1.75 billion loan earlier this month, it took advantage of banks' lower cost of funding and the loan market's resurgent levels of liquidity.
"We have banks that have not participated in loans in Asia since the global financial crisis as well as smaller banks in the region coming into Indian primary loans for the first time," Vineyesh Sawhney, senior vice president of finance at Reliance Industries, told FinanceAsia in a phone interview.
In total 30 lenders participated in the loan, including ANZ, Bank of America Merrill Lynch, Citi, HSBC, DnB Bank, RBS, Standard Chartered, KfW IPEX Bank GmbH, Westpac Banking Corp, Bank of Tokyo-Mitsubishi UFJ, Commonwealth Bank of Australia and Mizuho Bank.
The company, which is controlled by Mukesh Ambani, paid an all-in cost of Libor plus 175bp for its loan, which is 75bp lower than the 250bp over Libor it paid last year for a $1.5 billion loan. “Loan markets have been more stable than the bond markets, particularly with the Fed tapering [debate] and the loan market offered us competitive pricing,” Sawhney added.
A slew of blue-chip corporate borrowers from Australia’s Origin Energy to Hutchison Ports have tapped the loan markets so far this year as the cost of funding for banks has fallen in the interbank market. Many banks have also grown hungry for loan assets having seen companies use bond markets instead to refinance themselves in previous years.
“The wholesale cost of funding for banks has come down since the start of last year and banks can now price loans more competitively, so we have seen pricing for loans come down some 30-40% for blue chip borrowers compared to last year,” said Siong Ooi, head of Asia Pacific leveraged finance and loans at Bank of America Merrill Lynch. "Banks have a lot of balance sheet to put to work and this has created a market that is conducive for big blue chip names to access the loan markets," he said.
However, companies remain opportunistic and are still keeping an eye on bond markets. For example, Cnooc, Hutchison Ports and Origin Energy have all included an unusually short tenor of one-year in their recent loan deals, given them the flexibility to switch to a bond issue once bond markets perk up.
“Rated blue chip names have the capacity to also access the bond markets,” said Ooi. “But some of them have sought to access the loan market to capitalize on current strong market conditions, electing to incorporate a short-dated loan tranche which provides low-cost optionality, so that when bond markets are good, they can tap it to refinance,” he said.
Increased focus on cross-selling
Banks are seeking to get more bang for their buck when they lend. Given the interplay between bonds and loans and the tendency for borrowers to turn to the loan market when bond markets close, banks have merged their teams.
“A lot of banks have put their loan and bond teams together,” said Benjamin Ng, head of debt syndicate and acquisition finance group Asia Pacific at Citi. “There is a lot of synergy in a combined debt platform, it enhances the cross-sell opportunities and can increase the returns for the capital commitment" he said.
Investment banks have also been securing equity mandates on the back of lending. Power Assets, for example, which is controlled by Hong Kong’s richest man Li Ka-shing, is spinning off Hong Kong Electric into a business trust listing and has attracted some 19 banks to its HK$37.5 billion ($4.8 billion) three-year loan.
According to one source familiar with the matter, the company has attached an equity mandate to the loan so there is a higher likelihood of a bank being appointed on the IPO if they are involved on the loan.
HSBC and Goldman Sachs are coordinating the IPO and lenders. The other lenders are ANZ, Bank of China, Bank of Tokyo Mitsubishi, Barclays, BNP Paribas, China Construction Bank, CIBC, Citi, Credit Agricole, DBS, Deutsche Bank, Mizuho, OCBC, RBS, Scotiabank, SMBC and UOB.
But activity in the equity market can feed the loan market as well. The spin off listings of trusts such as Hong Kong Electric and Langham Hospitality Investment have also driven loans this year. Such trusts pay out a yield, and improve returns by having some debt in their capital structure. When they are spun off, that debt needs to be held by the trust.
