Asia Pacific syndicated loan volume slides to 7-year low

Bank of China remained the most active bank in Asia Pacific as it arranged $30.6bn worth of new syndicated loans in the past eight months, but that amount was down from $50.1bn by this point in 2018.

Syndicated loans in Asia Pacific have fallen in 2019 to their lowest level in seven years as dealmaking activity has been hit by global political uncertainty and volatile financial markets. The drop in such loans adds to the pressure on commercial banks whose lending books already face competition from low bond yields as well as increases in their own funding costs from regulatory changes. Banks in the region have lent a total of $281bn so far this year via syndicated loans – where a handful of banks take the initial loan before other institutions join and widen the lending pool – according to data from Refinitiv. That is down nearly 20% on the same period last year, when $348.3bn worth of such loans were made, and is the lowest since the $227bn loaned in 2012.

These loans are typically used for large deals or projects where the funding needed is too great a risk for a single bank to take on. “The latest lending data suggests businesses and investors are sitting on their hands rather than engaging in activity that needs debt financing,” said KPMG Australian chief economist Brendan Rynne. “The likely reason for this is the high level of uncertainty the world is currently facing. The geopolitical ring of fire is hotter than it has been for some time,” Rynne said. The value of announced M&A deals involving Asia Pacific companies reached $634.2bn in the first eight months of the year, down 35.2% compared to the same period in 2018, and the lowest volume since 2014, according to Refinitiv. Bank of China remained the most active bank in the region as it arranged $30.6bn worth of new loans in the past eight months, but that amount was down from $50.1bn by this point in 2018. HSBC was second, having been involved with $17.9bn of loans, compared to $14.4bn last year. China’s Bank of Communications’ share also grew sharply to $15.8bn in the past eight months from $2.6bn in the same period of last year.

A $11.6bn refinancing by CK Hutchison Holdings was the largest syndicated deal so far this year. The transaction, led by Citigroup and HSBC, was to refinance a bridging loan held by its Italian telecoms subsidiary Wind Tre.“A range of factors have impacted loan volumes including subdued M&A activity, which is partially due to the increasing trade war rhetoric, curtailed offshore acquisition activity among Chinese firms and volatile investment markets,” said Mahendra Kumar, Deutsche Bank’s head of loan origination in Asia. “With volatility in the bond markets, we expect borrowers to move back some of the flow transactions to the loan markets after a prolonged bull run in Asian high yield.”

Sources and photo-credits: Reuters, Gulf Times