Cnooc executives attend the company’s annual general meeting in Hong Kong. The company inked a $6bn bridge loan as part of its purchase of Canadian oil-sand operator Nexen.
Bloomberg
Asia’s syndicated loan volumes should rise at a faster rate than last year even amid pessimism about the region’s economic growth, according to the chairman of the Asia Pacific Loan Market Association.
The amount of loans in the Asia-Pacific region outside Japan will grow about 15% this year, largely fuelled by increasing foreign acquisitions by Chinese companies, Atul Sodhi said in an interview ahead of APLMA global loan market summit in Hong Kong. Volumes rebounded by 10% to $426.5bn last year as borrowers locked in the biggest margin slump in eight years, Bloomberg-compiled data show.
“The loan market is derived from economic growth,” said Sodhi, who is also the head of global loan syndications at Credit Agricole Corporate & Investment Bank SA in Hong Kong. “Even though there’s talk about a slowdown in certain parts of Asia, it’s still growing faster than any other part of the world.”
Asia’s companies are using bank debt to expand outside their home markets with the region’s economy forecast to grow more than twice that of the world’s this year, according to a Bloomberg News survey. That’s even as the MSCI Asia Pacific Index gauge of regional stocks had its worst start to the year since 2009 amid concern about US stimulus cuts, China’s slowdown and uncertainty in developing markets.
Volatility is yet to ripple out to Asia’s loan market as companies seek growth via both organic expansion and foreign purchases, said Sodhi. Corporates from China spent about $300bn on M&A transactions last year, making the nation the world’s most acquisitive after the US, according to data compiled by Bloomberg. The buyers raised $18.8bn of acquisition loans, the data show.
“China’s M&A activities were predominately coming from state-owned enterprises five to six years ago and now we’re seeing a strong emergence of private companies coming to the market,” said Sodhi. He expects to see steady deal flows for acquisition loans of $1bn or less from medium-sized Chinese companies in 2014.
Lenovo Group, the world’s largest maker of personal computers, announced $5bn of acquisitions within a week last month to help weather a slump in global PC shipments. The company agreed to buy Google Inc’s Motorola Mobility phone unit for $2.91bn on January 30, shortly after it unveiled its plan to purchase International Business Machines Corp’s low-end server business for $2.3bn on January 23.
Chinese Premier Li Keqiang has set a “bottom line” of 7% economic growth as his leadership team seeks to engineer a transition to consumption from investment-led expansion. At the same time, Chinese authorities are stepping up efforts to rein in financial risks and clamp down on speculative lending as concerns mount that a surge in borrowing over the last five years will tip the country into crisis.
“China’s economic development has provided broad space for the loan market,” said Wang Xiaozhuo, Beijing-based head of loan syndication for Bank of China. “Opportunities for China’s local loan market include large infrastructure projects that need a lot of money” in 2014, according to Wang.
Borrowers from mainland China accounted for four of the largest 10 deals in the Asia-Pacific region last year, Bloomberg-compiled data show. China National Offshore Oil Corp, the nation’s biggest offshore energy explorer, raised the most money, borrowing $9bn.
Cnooc inked a $6bn bridge loan last February as part of its purchase of Canadian oil-sand operator Nexen Inc, and a $3bn two-part loan in September, the data show. The state-owned company is seeking a new $2bn term loan to partly refinance the February deal, people familiar with the matter said on December 13.
Privately-held Chinese company WH Group ranked as the seventh-biggest borrower last year with a $4bn loan to back its acquisition of US-based Smithfield Foods Inc, the world’s biggest pork supplier, the data show. WH was called Shuanghui International Holdings until January.
“Loan markets in Hong Kong and China will continue their momentum on strong corporate demand and cross-border acquisitions,” said Sodhi.
Borrowing costs slumped across the Asia-Pacific region in 2013, with average margins over the London interbank offered rate on US dollar-denominated loans shrinking by 21 basis points, the biggest drop since 2005, to 267 basis points, Bloomberg-compiled data show.
Pricing will stabilise or even rise slightly this year as tapering of Federal Reserve stimulus curbs liquidity, said Sodhi. The US central bank said in December it would start reducing the monthly pace of asset purchases, citing progress toward its goal of full employment. It announced a $10bn reduction that month, followed by a cut of the same size in January, to $65bn.
