Nearly four years after being founded in August 1998, the Asia Pacific Loan Market Association (APLMA) has launched Phase I of its standardized loan documentation aimed at promoting growth in the primary and secondary loan markets of Asia. Simultaneously launched in Hong Kong and Singapore, the launch marks a milestone for the association.
Speaking at the launch, HKMA, deputy CEO, David Carse said, "the Association's initiative in producing a suite of standard loan documents is so important, and is probably the association's major achievement to date. Good documentation plays a vital role in underpinning the growth and liquidity of markets in financial products."
Headquartered in Hong Kong, with branches in Singapore and Australia, and a representative office in Tokyo, APLMA now boasts of a membership of 90 members representing banks, financial institutions, law firms, brokerages, rating agencies, financial information providers and online trading platforms. APLMA works closely with its sister organizations รป Loan Market Association (LMA) in London and Loan Syndications and Trading Association (LSTA) in New York - expounding the virtues of common market standards and practices with the aim of providing a boost to global loan market liquidity. Standardization of loan documentation, promotion of prudent banking practices and acting as a liaison between loan market participants and regional regulators are among the main objectives of the association.
The launch of Phase I of the standardized loan documentation is a feather in the cap for the association, especially with the support it received for the launch from The Hong Kong Monetary Authority (HKMA) and The Monetary Authority of Singapore (MAS).
Phase I of the standardized loan documents addresses primary market loan documents, including Euro and HK dollar facilities, multi-currency facilities, revolving facilities and term loan facilities and combinations of these. Phase I also comprises of a user guide, term sheet and confidentiality undertakings.
Also speaking on the occasion, Robin Gibbons, director, global loans, Barclays Capital, and also the chairman of the APLMA documentation committee, emphasized that "this is not the end of the process. Our success or failure will be judged in terms of whether we get acceptance from primarily the banks of represented here in terms of using the documents in real transactions."
Although APLMA only counts a handful of domestic banks among its members, including the likes of Bank of China, DBS Bank, Korea Exchange Bank (KEB) and OCBC, to name a few, it is hopeful that the standard documents would be well received in Asia Pacific loan markets. The documents are most likely to be used in loans to investment grade companies borrowing on an unsecured basis. APLMA intends to develop variations of the document templates for other markets in Asia.
The documents are not set in stone and will be reviewed periodically. The documents are based on the standard documents of the LMA, which have been widely accepted in European loan markets and were developed in partnership with the UK Association of Corporate Treasurers. The APLMA's standard documents for Asia Pacific are the result of extensive consultations with local and international banks and law firms, HKMA, MAS and the Hong Kong Association of Banks.
APLMA is also seeking feedback from borrowers so that their comments can be taken into consideration at the first revision date. Carse says, "Standardized documentation is almost unreservedly a good thing subject to only two provisos. Firstly, basic documents will still need to be tailored to suit individual transactions - and the documents leave gaps for this to be done. Secondly, the standard terms will need to evolve and be revised to take account of changing market circumstances and particular issues that arise. They may on occasions need to be tested in courts."
Interestingly enough, APLMA had launched Phase I in June 2001 with an original set of documents that did not include the HK dollar revolving and term loan facilities, user guide, term sheet and confidentiality undertakings. The APLMA website then encountered hosting problems resulting in the loss of the original set of documents. This proved to be a blessing in disguise as APLMA then constituted a new documentation committee earlier this year, which after extensive consultations with market participants and regulators was able to add more documents to the original set making it as comprehensive as possible.
Commenting on delay of the launch of Phase I, Carse added, "It takes time to reach agreement on these things. What you are trying to do is to synthesize existing practice in the market and then get people to agree on a common denominator. People are not always keen to use standardized documentation because they like to use what they are familiar with and they may have a proprietary interest in using their own documentation. I think it is quite an achievement to get this in place. I don't think it has taken a particularly long time. Some of the initiatives that HKMA launches seems to take even longer than that."
The APLMA is aiming to launch Phase II by the end of the year. Phase II of APLMA's initiative aims to enhance liquidity and to foster growth in secondary loan markets. According to Gibbons, "Phase II of the standard documentation, in many ways will prove to more challenging than the primary documentation because in some ways it is more complicated in concept."
Phase III will address distressed debt trading and will be launched following the launch of Phase II.
Referring to the launch of Phase I in comparison with European and the US markets, Carse says, "I think it is another sign of maturity in the market because its putting the Asian markets, not just Hong Kong, on a similar footing to what is existing practice in European and US markets. It should develop the growth and liquidity of the markets here."
