HONG KONG (Reuters) – Earlier this month, Henderson Land Development Co, a Hong Kong-based blue chip property developer, hoped to raise HK$5 billion ($641 million) from the syndicated loans market.
Even with lending sluggish in most parts of the globe, 34 banks lined up at Henderson’s door step, offering up to HK$12 billion for a three-year revolving credit line.
Less than a year since Wall Street titan Lehman Brothers collapsed, causing a chain reaction that brought the world’s financial system to its knees, companies in Asia are slowly getting more access to credit. But not every company has access.
Bank loans are flowing mainly to companies with high credit ratings and the bond market is booming. In the end, Henderson turned down some offers, closing the deal at HK$8 billion.
“It just shows you that there’s pent-up liquidity for the right names in the market,” said Philip Lipton, the Asia Pacific head of syndicated finance at HSBC.
Still, there is a substantial number of companies being turned away by lenders. The shipping, petrochemical, airline and manufacturing sectors are being viewed with caution, bankers say.
Companies with non-investment grade credit ratings or heavy exposure to weak demand from developed economies are also struggling to raise funds.
Many firms have cut capital spending or put expansion plans on hold, faced with double-digit percentage falls in exports and an uncertain outlook for demand from their main customers in advanced economies.
Only when industrial output and exports pick up substantially will banks begin to give these kinds of companies a more welcome response.
“The bank loan market is more cautious and liquidity in general is less than it used to be given the number of players that have either withdrawn from the market or are looking inwards at this point, figuring out their strategies and not being aggressive in terms of putting on balance-sheet risk,” said Amit Khattar, head of non-Japan Asia loan syndicate with Credit Suisse.
LENDING STILL SELECTIVE
After a rough start to the year, debt markets are indeed opening up again. Investors eager to earn returns on their piles of cash have been snapping up deals, confident that the worst of the financial crisis has passed.
For a graphic, click on http://graphics.thomsonreuters.com/069/AS_LNDG0609.jpg
Thirty-one syndicated loan deals worth $10.4 billion were completed in May in Asia Pacific excluding Japan, though still only half the volume of a year ago before Lehman’s collapse, Reuters Basis Point figures show.
An explosion in loan growth in China can hardly qualify as a return to healthy borrowing. Local media say Chinese banks lent $951 billion during the first half of 2009 geared toward centralised infrastructure projects, a key part of Beijing’s efforts to drive economic growth to 8 percent this year.
Government-related firms in Asia saw proceeds from bond issuance rise 155 percent in the year to June 4 to $77 billion, Thomson Reuters data shows.
In terms of companies’ ability to raise debt levels outside of state-sponsored lending, the key remains investment-grade credit and industry growth prospects.
For example, banks are eager to lend to Asian companies in the food and beverage sectors, because of the size of the region’s consumer market and the prospect for stable sales.
In a sign more banks are joining the lending fray in Asia, syndicate bankers say competition has picked up in the last month, a factor pushing loan prices down.
One factor behind Asian banks’ confidence to lend again is that they strengthened their balance sheets following the shocks of the 1997-1998 Asian financial crisis. That effort is now paying off, bankers and analysts say.
What’s more, 30 percent of large Asian companies said their access to bank revolving credit lines had improved in the past three months, while 18 percent of firms said it had become more difficult, a survey last week by Greenwich Associates showed.
In Europe, about half of the 250 large companies participating in the survey said their access to revolving credit and term bank loans had been curtailed.
BOND MARKET RENAISSANCE?
Over the next 12 months, companies that are not dependant on asset sales to pay off debt will secure the best access to capital, said Yu-Tsung Chang, executive vice president and Asia Pacific head of Standard & Poor’s Ratings.
Those with sustained revenue flows, such as consumer staples providers, will also have an easier time raising cash.
While access to credit will remain selective, the bond market, apart from the financial sector, is still likely to grow. A liquid, functioning bond market is widely viewed as essential for Asia to grow as a financial powerhouse.
Bonds and loans usually function separately. Loans are typically shorter-term and backed by banks, while bonds can be longer-term and can extend into the retail market.
Right now in Asia the two are working in tandem.
Companies taking out loans may use them as a bridge to issue a bond later, when pricing comes down and more liquidity returns to the market, said Philip Cracknell, global head of syndications at Standard Chartered in Hong Kong.
“While the loan market is suffering by banks withdrawing, bonds are going through a renaissance. The appetite for bonds is considerable. And that has helped the loan market because very often a loan is a take-out for a bond,” he said.
Bond issuance in Asia in euros, dollars or yen rose 61.5 percent to $28.2 billion in the first half. Volumes in local currency bond markets rocketed to a record of $133.4 billion, mostly due to heavy issuance of Chinese yuan-denominated bonds, Thomson Reuters data shows.
“It’s still a tough market, in the sense that the universe has diminished, and risk appetite has changed,” Cracknell said. “I think the market is slowing returning to health, with an emphasis on ‘slowly’.”
By Kevin Plumberg and Michael Flaherty